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The Impact of the Judiciary on Economic Activity

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Author Info
Matthieu Chemin
Abstract

This paper examines the consequences of slow judiciaries on firms' contracting behaviour in India. After deriving testable implications from a game theoretical model, I examine how case pendency rates in India's state courts affect the contracting behaviour of 170,000 small non-agricultural informal firms from the 2000 National Sample Survey's 55th round. I find that a slow judiciary implies more breaches of contract, discourages firms from undertaking relationship-specific investments, impedes firms' access to formal financial institutions, and favours inefficient dynasties. Moving a firm from the highest to the lowest pendency state would result in a 10% improvement in firm performance.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0724.

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Date of creation: 2007
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Handle: RePEc:lvl:lacicr:0724

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Related research
Keywords: Law and economics Institutions Courts Contracts Industrial Organisation Economic Growth Industrial Performance

Find related papers by JEL classification:
K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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  13. Avinash Dixit, 2003. "Trade Expansion and Contract Enforcement," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1293-1317, December. [Downloadable!] (restricted)
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