Contract Law is Not Enough: The Many Legal Institutions That Support Contractual Commitments

50 Pages Posted: 29 Apr 2004  

Gillian K. Hadfield

USC Law School and Department of Economics

Abstract

One of the fundamental contributions of transaction cost theory and institutional economics has been to focus attention on opening the "black box" of contract enforcement, drawing attention to the institutions required to achieve effective and low-cost contract enforcement. The idea that the effectiveness of contract law is critical to the growth of economic activity is widespread in the literature on development and transition economies. Recent studies attempting to document the relative strength of contract enforcement in different settings (La Porta, et. al., 1998; Djankov, et. al., 2003), however, have focused on relatively abstract notions of "courts" and "legal systems" and have yet to investigate the detailed institutional features that make contract law effective and low-cost. Even if it is correct to identify "common law legal systems" as productive of greater economic growth, for example, we still do not know what it is about those systems that produces this growth and in particular how these systems achieve more effective and lower cost contract enforcement. This paper explores in a detailed way the multiple legal institutions at work in the organization of courts, the judiciary, the legal profession, enforcement services, and the process of lawmaking and legal innovation, all of which play significant roles in structuring an effective and cost-effective regime of contract enforcement.

JEL Classification: D23, K12, K40, L14, P37

Suggested Citation

Hadfield, Gillian K., Contract Law is Not Enough: The Many Legal Institutions That Support Contractual Commitments. HANDBOOK OF NEW INSTITUTIONAL ECONOMICS, Claude Menard and Mary Shirley, eds., Kluwer Press, 2004. Available at SSRN: https://ssrn.com/abstract=537303

Gillian K. Hadfield (Contact Author)

USC Law School and Department of Economics ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-821-6793 (Phone)
213-740-5502 (Fax)

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