The Role of Institutions in the Contractual Process

In B. Deffains and T. Kirat, eds., Law and Economics in Civil Law Countries, The Economics of Legal Relationships Series, 2001, JAI Press, Stamford, CT, 177-96

Posted: 21 Jul 2003 Last revised: 23 Jul 2018

See all articles by Benito Arruñada

Benito Arruñada

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

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Abstract

This work first describes how exchange is organized in an institutional environment with laws, courts and markets focusing on the dual effect of this environment. Institutions enjoy specialization advantages in safeguarding exchange but they also make possible new forms of opportunism, causing new costs of exchange. Institutions are therefore subject to the standard trade-off of specialization advantages and exchange costs. Three perverse tendencies are identified and discussed: 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 second-party enforcement, the quasi-judicial role of the parties and the market. Third, market enforcement is based on reputational assets that are badly exposed to opportunism, often of judicial origin.

Note: This is a description of the article and not the actual abstract.

Keywords: contracts, institutions, enforcement, safeguards

JEL Classification: L14, K00, K20

Suggested Citation

Arruñada, Benito, The Role of Institutions in the Contractual Process. In B. Deffains and T. Kirat, eds., Law and Economics in Civil Law Countries, The Economics of Legal Relationships Series, 2001, JAI Press, Stamford, CT, 177-96. Available at SSRN: https://ssrn.com/abstract=401820

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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