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Martimort, David
ORCID: https://orcid.org/0000-0002-4185-8703 and Simons (Semenov), Aggey
(2026)
One-Sided Enforcement in a Model with Persistent Adverse Selection.
TSE Working Paper, n. 26-1704, Toulouse
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Abstract
We study a repeated buyer-seller relationship with persistent adverse selection and one-sided enforcement, where a prepaid seller can breach by taking the money and running. The optimal stationary contract depends on enforcement strength and the discount factor. Three regimes arise. With a strong legal system, penalties deter breach and the optimal static contract can be repeated. With a weak system, the penalty caps transfers, forcing bunching among efficient (low-cost) types. With a very weak system, compliance relies on relational rents, causing large downward distortions. Strengthening public enforcement relaxes both incentive and enforcement constraints, reducing allocative inefficiency.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | January 2026 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | Adverse selection, Limited enforcement, Relational contracts, Contract breach |
| JEL Classification: | D82 - Asymmetric and Private Information D86 - Economics of Contract - Theory K12 - Contract Law O17 - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements - Legal, Social, Economic, and Political |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse Capitole |
| Site: | UT1 |
| Date Deposited: | 02 Feb 2026 07:45 |
| Last Modified: | 02 Feb 2026 07:47 |
| OAI Identifier: | oai:tse-fr.eu:131355 |
| URI: | https://publications.ut-capitole.fr/id/eprint/51945 |
