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Coase And Corporate Governance In Latin America

  • SIMON JOHNSON

    ()

    (MIT)

  • ANDREI SHLEIFER

    ()

    (Harvard University)

There remains strong support in law and economics for three important Coasian positions: law does not matter; law matters but their institutions adapt to allow efficient private contracts; and finally, while law matters and domestic institutions cannot adapt enough, firms and individuals can write international contracts that achieve efficiency. Despite being extremely powerful, these arguments are rejected by the data. Countries with stronger investor protection through the law have more developed capital markets, and find it easier to finance economic development. Weak corporate governance also appears to make companies and countries vulnerable to large collapses. Coasian arguments fail because of enforceability. Absent strong domestic laws and an efficient judiciary, or a tough but fair regulator, there is no way to protect investors. Using the Coasian idea that private contracts can attain efficient ouctomes, the right question becomes how to make it easier for the private sector to write its own efficient contracts. Effective legal reform has proved possible in some cases. Some of the successful reforms to date implement US standards of disclosure.

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Article provided by Escuela de Administracion. Pontificia Universidad Católica de Chile. in its journal ABANTE.

Volume (Year): 2 (2000)
Issue (Month): 2 ()
Pages: 113-131

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Handle: RePEc:pch:abante:v:2:y:2000:i:2:p:113-131
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