Social Capital and the Formal Legal System: Evidence from Prefecture-Level Data in Japan

Harvard Law School, John M. Olin Center for Law, Economics, and Business, Discussion Paper No. 767

48 Pages Posted: 18 Apr 2014

Date Written: April 17, 2014

Abstract

Verifiable proxies for social capital potentially provide an empirically tractable way to identify environments where social norms both constrain behavior and substitute for judicial enforcement. Using regression and factor analysis with Japanese prefecture-level data, I explore several aspects of this possibility. First, I find that people in prefectures with high levels of social capital more readily comply with a range of low-level legal mandates. Second, reflecting the fact that social norms need not point toward government-approved ends, taxpayers in high social-capital prefectures (particularly in the agricultural sector) are more -- not less -- likely to evade taxes. Third, conditional on levels of economic welfare, I find that: (a) firms in prefectures with low levels of social capital are more likely to default on their contracts; (b) residents in low social-capital prefectures are probably (the results are ambiguous) more likely to litigate; (c) creditors of distressed debtors in low social-capital prefectures are more likely to apply in court for enforcement orders, and (d) distressed debtors in low social-capital prefectures are more likely to file in court for bankruptcy protection.

Keywords: social capital, litigation, contract enforcement, norms

JEL Classification: K41, K42, K120

Suggested Citation

Ramseyer, J. Mark, Social Capital and the Formal Legal System: Evidence from Prefecture-Level Data in Japan (April 17, 2014). Harvard Law School, John M. Olin Center for Law, Economics, and Business, Discussion Paper No. 767, Available at SSRN: https://ssrn.com/abstract=2425763 or http://dx.doi.org/10.2139/ssrn.2425763

J. Mark Ramseyer (Contact Author)

Harvard Law School ( email )

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