The Role of Institutions in the Contractual Process

LAW AND ECONOMICS IN CIVIL LAW COUNTRIES, THE ECONOMICS OF LEGAL RELATIONSHIPS SERIES, B. Deffains and T. Kirat, eds., pp. 177-196, JAI Press, Stamford, CT

27 Pages Posted: 29 Jun 2001 Last revised: 16 Jun 2008

See all articles by Benito Arruñada

Benito Arruñada

Pompeu Fabra University - Department of Economics and Business; Barcelona GSE

Multiple version iconThere are 2 versions of this paper

Abstract

Human beings increase their productivity by specializing their resources and exchanging their products. The organization of exchange is costly, however, because specialized activities need coordination and incentives have to be aligned. This work first describes how these exchanges are organized in an institutional environment. It then focuses on the dual effect of this environment - as with any other specialized resource, institutions may be used for expropriation purposes. They enjoy specialization advantages in safeguarding exchange but they also make possible new forms of opportunism, causing new costs of exchange. Three perverse tendencies are identified: In the legal field, there is a surplus of mandatory rules and, at the same time, a deficit in default rules. Second, courts' activity is biased against the quasi-judicial role of the parties and the market. Third, Market enforcement is based on reputational assets that are badly exposed to opportunism.

Keywords: Contracts, institutions, enforcement, safeguards.

JEL Classification: L14, K00, K20

Suggested Citation

Arruñada, Benito, The Role of Institutions in the Contractual Process. LAW AND ECONOMICS IN CIVIL LAW COUNTRIES, THE ECONOMICS OF LEGAL RELATIONSHIPS SERIES, B. Deffains and T. Kirat, eds., pp. 177-196, JAI Press, Stamford, CT. Available at SSRN: https://ssrn.com/abstract=273406 or http://dx.doi.org/10.2139/ssrn.273406

Benito Arruñada (Contact Author)

Pompeu Fabra University - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Department of Economics and Business
Barcelona, 08005
Spain
+34 93 542 25 72 (Phone)
+34 93 542 17 46 (Fax)

HOME PAGE: http://www.econ.upf.edu/~arrunada

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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