On Modes of Economic Governance
39 Pages Posted: 13 Nov 2001
Date Written: October 2001
I consider transactions involving asymmetric prisoners' dilemmas between pairs of players selected from two large populations. Games are played repeatedly, but information about cheating is not adequate to sustain cooperation, and there is no official legal system of contract enforcement. I examine how profit-maximizing private intermediation can supply the information and enforcement. I obtain conditions under which private governance can improve upon no governance, and examine why it fails to achieve social optimality.
JEL Classification: H10, K12
Suggested Citation: Suggested Citation