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Miguel & Gugerty (2004) Social Networks It becomes more difficult to discipline dysfunctional behaviour through punishments administered by formal institutions. The lack of enforcement institutions may explain why moral hazard is a more significant problem is developing societies. 3 sources of contracting imperfections: (1) limited wealth of productive agents – constrains the design of high pow- ered contracts – limited liability – incentives must be provided via carrot as opposed to stick (2) non-contractibility of relevant dimensions of performance – depends on com- modity exchanged or service performed and on strength of legal institu- tions that enforce contracts or resolve disputes – need appropriate owner- ship or control structures to rein the scope for dysfunctional opportunistic behaviour – there is a huge incomplete contracting literature on this. In interesting paper are the Grossman-Hart and Hart-Moore paper. Oliver
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