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Standardized enforcement: Access to justice vs contractual innovation

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  • Nicola Gennaioli
  • Enrico Perotti

Abstract

We model the different ways in which precedents and contract standardization shape the development of markets and the law. In a setup where more resourceful parties can distort contract enforcement to their advantage, we find that the introduction of a standard contract reduces enforcement distortions relative to precedents, exerting two effects: i) it statically expands the volume of trade, but ii) it crowds out the use of innovative contracts, hindering contractual innovation. We shed light on the large scale commercial codification occurred in the 19th century in many countries (even Common Law ones) during a period of booming commerce and long distance trade.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1329.

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Date of creation: Apr 2009
Date of revision: Jun 2012
Handle: RePEc:upf:upfgen:1329

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Web page: http://www.econ.upf.edu/

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Keywords: contracting; standardization; inequality; legal evolution.;

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References

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  1. Oliver Hart & John Moore, 2006. "Contracts as Reference Points," NBER Working Papers 12706, National Bureau of Economic Research, Inc.
  2. Luca Anderlini & Leonardo Felli & Alessandro Riboni, 2008. "Statute Law or Case Law?," Carlo Alberto Notebooks 83, Collegio Carlo Alberto.
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  7. Nicola Gennaioli & Stefano Rossi, 2006. "Contractual resolutions of financial distress," Economics Working Papers 1316, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2012.
  8. Ernst Fehr & Oliver D. Hart & Christian Zehnder, 2008. "Contracts as Reference Points - Experimental Evidence," NBER Working Papers 14501, National Bureau of Economic Research, Inc.
  9. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
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  12. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation: A solution to the Hold-Up Problem," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
  13. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
  14. Nicola Gennaioli, 2013. "Optimal Contracts With Enforcement Risk," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 59-82, 02.
  15. Patricio A. Fernández & Giacomo A. M. Ponzetto, 2009. "Stare decisis: Rhetoric and substance," Economics Working Papers 1361, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2010.
  16. Anthony Niblett & Richard A. Posner & Andrei Shleifer, 2010. "The Evolution of a Legal Rule," The Journal of Legal Studies, University of Chicago Press, vol. 39(2), pages 325 - 358.
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Cited by:
  1. Massenot, Baptiste, 2010. "Financial development in adversarial and inquisitorial legal systems," MPRA Paper 27098, University Library of Munich, Germany.
  2. Massenot, Baptiste, 2011. "Financial development in adversarial and inquisitorial legal systems," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 602-608.
  3. Ari Van Assche & Galina A. Schwartz, 2013. "Contracting Institutions and Ownership Structure in International Joint Ventures," CIRANO Working Papers 2013s-04, CIRANO.
  4. Massenot, Baptiste, 2010. "Contract enforcement, litigation, and economic development," MPRA Paper 27501, University Library of Munich, Germany.
  5. 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.

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