Contract enforcement, litigation, and economic development
AbstractThis paper introduces a model of litigation in a growth framework. Investors use litigation to enforce their financial contracts with entrepreneurs. A contest ensues in which both agents hire lawyers to increase their probability of winning the trial. The issue and the cost of the contest determine how much investors are willing to lend. More lawyers are hired when judicial efficiency is lower and damages are higher. Higher judicial efficiency and tighter restrictions on the supply of lawyers benefit the economy, while the impact of higher damages is ambiguous. Some empirical evidence is also presented.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 27501.
Date of creation: Dec 2010
Date of revision:
contract enforcement; litigation; lawyers; economic development;
Find related papers by JEL classification:
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-23 (All new papers)
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