Courts and Relational Contracts
71 Pages Posted: 5 Feb 2002
Date Written: January 2002
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.
JEL Classification: D2, G0
Suggested Citation: Suggested Citation