The Transition from Relational to Legal Contract Enforcement

29 Pages Posted: 6 Jun 2006

See all articles by Fali Huang

Fali Huang

Singapore Management University - School of Social Sciences

Date Written: June 5, 2006

Abstract

This paper studies the transition of contract enforcement institutions. The prevalence of relational contracts, low legal quality, strong cultural preference for personalistic relationships, low social mobility, and highly unequal endowment form a cluster of mutually reinforcing institutions that hinder economic development. The cultural element per se does not necessarily reduce social welfare though it may slow down the legal development, while the real problem lies in endowment inequality and low social mobility. Thus a more equal distribution of resources may be the ultimate key to unravel the above interlocking institutions. These results are generally consistent with the empirical evidence.

Keywords: relational contract, legal contract enforcement, institutions, endowment inequality, economic development.

JEL Classification: O1, K49, C72, Z1

Suggested Citation

Huang, Fali, The Transition from Relational to Legal Contract Enforcement (June 5, 2006). Available at SSRN: https://ssrn.com/abstract=906519 or http://dx.doi.org/10.2139/ssrn.906519

Fali Huang (Contact Author)

Singapore Management University - School of Social Sciences ( email )

90 Stamford Road
Singapore, 178903
Singapore
65-68280859 (Phone)
65-68280833 (Fax)

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