Governance, trade, and investment

• Security of property and contracts is key for foreign traders and investors.
• Institutions affect contract enforcement and with it international trade.
• The optimal governance of property and contract is imperfect.
• Alternative social institutions for governance of contract arise but are imperfect.

Imperfections in the rule of law create new problems of contractibility, in addition to the familiar one of unverifiability of information. Alternative social institutions for governance of property and contract arise but are also imperfect, and can interact well or poorly with the formal state institutions. Security of property and contract is especially problematic for foreign traders and investors. This paper considers some theoretical analysis of such situations. The game-theoretic ideas and methods range from simple two-stage games with strategic moves to bilateral and multilateral repeated games with added issues of asymmetric information and imperfect communication.