Courts and Relational Contracts
Massachusetts Institute of Technology (MIT) - Entrepreneurship Center; National Bureau of Economic Research (NBER)
Stanford Graduate School of Business; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Christopher M. Woodruff
University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS)
MIT Sloan Working Paper No. 4338-02; Stanford Law and Economics Olin Working Paper No. 227
Post-communist countries offer new evidence on the relative importance of courts and relationships in enforcing contracts. Belief in the effectiveness of courts has a significant positive effect on the level of trust shown in new relationships between firms and their customers. Well-functioning courts also encourage entrepreneurs to try out new suppliers. Courts are particularly important when specific investments are needed for a relationship to develop. While relationships can sustain existing interactions, workable courts help new interactions to start and develop.
Number of Pages in PDF File: 57
JEL Classification: D2, G0Accepted Paper Series
Date posted: February 12, 2002
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