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Courts and Relational Contracts

  • Simon Johnson
  • John McMillan

Post-communist countries offer new evidence on the relative importance of courts and relationships in enforcing contracts. Belief in the effectiveness of courts has a significant positive effect on the level of trust shown in new relationships between firms and their customers. Well-functioning courts also encourage entrepreneurs to try out new suppliers. Courts are particularly important when specific investments are needed for a relationship to develop. While relationships can sustain existing interactions, workable courts help new interactions to start and develop. Copyright 2002, Oxford University Press.

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Article provided by Oxford University Press in its journal Journal of Law, Economics, and Organization.

Volume (Year): 18 (2002)
Issue (Month): 1 (April)
Pages: 221-277

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Handle: RePEc:oup:jleorg:v:18:y:2002:i:1:p:221-277
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