Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89391
Authors: 
Bruno, Randolph Luca
Year of Publication: 
2006
Series/Report no.: 
LEM Working Paper Series 2006/16
Abstract: 
This paper presents a model of Rule of Law in which a continuum of agents plays against the State for the appropriation of the economic assets of a stylised economy. The model shows how each agent can either challenge the State or acquiesce, with the latter having the choice of either protecting property rights or abandoning the economy to anarchy. Players' payoffs are affected by strategic complementarities, not only between State and agents but also among agents themselves. As a consequence of this, a Coordination Failure is generated. The solution of the game is given by two Pareto-ranked Nash equilibria emerging from the context. Introducing idiosyncratic information and sequential play generates a unique equilibrium, according to the global game approach. On the one hand, this model predicts that high uncertainty and sunk costs in law enforcement have a negative effect, pushing the economy towards a Pareto-dominated equilibrium. On the other hand, the high value given to the economy's assets (embedded social norms) has a positive influence, leading to a Pareto-dominant equilibrium.
Subjects: 
Rule of Law
Coordination Failure
Global Games
JEL: 
D81
C72
K42
Document Type: 
Working Paper

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