ON MARKET INTEGRATION AND THE DEVELOPMENT OF INSTITUTIONS - THE CASE OF INTERNATIONAL COMMERCIAL ARBITRATION

This paper suggests that the institutional basis necessary to support efficient international trade is provided not only by treaties among n ational governments but also by international coalitions of private ag ents. International commercial arbitration is an important example of these private coalitions. The paper reviews the provisions and the pra ctice of international arbitration, and presents a general equilibrium model of the relationship between the expansion of international trad e and the adoption of arbitration. The model shows that arbitration al ters the size and composition of markets, while at the same time respo nding to exogenous changes in trade.