Spontaneous Market Emergence
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Marcel Fafchamps
Abstract
Drawing insights from the literature and from the author's own survey work on contractual practices among manufacturers and traders in Africa, we study the transition from anonymous to personal to impersonal exchange. Using a dynamic game with heterogenous agents and information sharing, we derive precise conditions under which relational contracting spontaneously emerges and deters opportunistic breach even in the absence of formal market institutions. Exclusion of cheaters is not required for contracting to begin. As exchange develops, newcomers may be excluded from contracting when screening costs are high and agents long lived. Reputational equilibria in which cheaters are permanently excluded are not decentralizable unless contracting is already developed and breach of contract is interpreted as a sign of impending bankruptcy.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Local Conventions
- Equilibrium Departures from Common Knowledge in Games with Non-Additive Expected Utility
- Bargaining over Risky Assets
- Private Strategies in Finitely Repeated Games with Imperfect Public Monitoring
- Regulation by Negotiation: the Private Benefit Bias
- Joint Liability and Peer Monitoring under Group Lending
- The Noisy Duopolist
- Spontaneous Market Emergence
- A Simple Linear Programming Approach to Gain, Loss and Asset Pricing
- Forward Discount Bias, Nalebuff's Envelope Puzzle, and the Siegel Paradox in Foreign Exchange
- Risk Averse Supervisors and the Efficiency of Collusion
- Advances Article
- The Principal-Agent Matching Market
Articles in the same Issue
- Local Conventions
- Equilibrium Departures from Common Knowledge in Games with Non-Additive Expected Utility
- Bargaining over Risky Assets
- Private Strategies in Finitely Repeated Games with Imperfect Public Monitoring
- Regulation by Negotiation: the Private Benefit Bias
- Joint Liability and Peer Monitoring under Group Lending
- The Noisy Duopolist
- Spontaneous Market Emergence
- A Simple Linear Programming Approach to Gain, Loss and Asset Pricing
- Forward Discount Bias, Nalebuff's Envelope Puzzle, and the Siegel Paradox in Foreign Exchange
- Risk Averse Supervisors and the Efficiency of Collusion
- Advances Article
- The Principal-Agent Matching Market
