The Complementarity Between Community and Government in Enforcing Norms and Contracts, and Their Interaction with Religion and Corruption

67 Pages Posted: 17 Apr 2018 Last revised: 27 Jul 2021

See all articles by Matthew O. Jackson

Matthew O. Jackson

Stanford University - Department of Economics; Santa Fe Institute

Yiqing Xing

Johns Hopkins University - Carey Business School

Date Written: January 31, 2021

Abstract

We investigate the complementarity between informal communities and formal government enforcement of norms of reciprocation and exchange. We introduce a model in which people exchange informally within their community as well as externally on a market. We show that informal community and formal enforcement are complements: the news that someone was convicted of cheating on the market leads that person to be ostracized by their community, bolstering incentives. Although transactions within a community can be less directly beneficial than those on a wider market, doing some transactions within a community and others on a formal market lowers overall costs of enforcement and is still welfare-enhancing compared to either extreme for a wide range of costs of formal enforcement. We also show that religion can enhance the complementarity between community and formal enforcement, while corruption undermines it. We discuss how community can play an important role in a country's development.

Keywords: Community, Government, Contracts, Reputation, Enforcement, Laws, Courts, Trust, Religion, Corruption, Norms, Privacy

JEL Classification: C72, C73, D23, D73, H11, K12, O17, P48, P51, Z12

Suggested Citation

Jackson, Matthew O. and Xing, Yiqing, The Complementarity Between Community and Government in Enforcing Norms and Contracts, and Their Interaction with Religion and Corruption (January 31, 2021). Johns Hopkins Carey Business School Research Paper No. 18-07, Available at SSRN: https://ssrn.com/abstract=3153842 or http://dx.doi.org/10.2139/ssrn.3153842

Matthew O. Jackson (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
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Stanford, CA 94305-6072
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HOME PAGE: http://www.stanford.edu/~jacksonm

Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Yiqing Xing

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://yiqingxing.com

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