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Contracting in the Shadow of a Corrupt Court

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  • Vai-Lam Mui

Abstract

This paper presents an incomplete contracting model to show how judicial corruption and judicial favoritism can lead to distortions in agents' incentives to invest in relation-specific assets and cause inefficiency. I also show that while an increase in the judge's income always increases investment, it is possible that a strongly favoritism-reducing increase in the authority's propensity to monitor the judiciary can actually reduce, instead of increase, investment in equilibrium. The implications of these findings for the study of institutional reforms, the relationship between the institutional environment and institutional arrangements, and the political economy of connections are explored.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 155 (1999)
Issue (Month): 2 (June)
Pages: 249-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(199906)155:2_249:citsoa_2.0.tx_2-a

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Cited by:
  1. Ari Van Assche & Galina A. Schwartz, 2013. "Contracting Institutions and Ownership Structure in International Joint Ventures," CIRANO Working Papers 2013s-04, CIRANO.
  2. Van Assche, Ari & Schwartz, Galina A., 2013. "Contracting institutions and ownership structure in international joint ventures," Journal of Development Economics, Elsevier, vol. 103(C), pages 124-132.
  3. Peter Bardsley & Quan Nguyen, 2005. "Rent Seeking and Judicial Bias in Weak Legal Systems," Department of Economics - Working Papers Series 925, The University of Melbourne.
  4. Juin-jen Chang & Chia-ying Liu, 2007. "The Negligence Rule in the Presence of Judicial Corruption and Social Norms," Atlantic Economic Journal, International Atlantic Economic Society, vol. 35(2), pages 203-215, June.
  5. Kretschmer, Anne, 2002. "Maßnahmen zur Kontrolle von Korruption: Eine modelltheoretische Untersuchung," Arbeitspapiere 25, Westfälsche Wilhelms-Universität Münster (WWU), Institut für Genossenschaftswesen.
  6. Cooter, Robert & Garoupa, Nuno, 2000. "The Virtuous Circle of Distrust: A Mechanism to Deter Bribes and Other Cooperative Crimes," Berkeley Olin Program in Law & Economics, Working Paper Series qt83c0k3wc, Berkeley Olin Program in Law & Economics.

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