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Court-ship, kinship and business: a study on the interaction between the formal and the informal institutions and its effect on entrepreneurship

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  • Tanika Chakraborty

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  • Anirban Mukherjee

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  • Sarani Saha

    ()

Abstract

In this paper we theoretically and empirically examine how the interaction between the formal court system and the informal loan network affects a household’s decision to start a business. We find that when the formal court system is weak, expansion of informal credit network leads to the proliferation of business. However, with a sufficiently strong court system, expansion of the credit network has a negative effect on business prospects. This result is explained by the contradictions between formal laws and norms used by informal networks. JEL codes K12; L26; O17 Copyright Chakraborty et al.; licensee Springer. 2015

Suggested Citation

  • Tanika Chakraborty & Anirban Mukherjee & Sarani Saha, 2015. "Court-ship, kinship and business: a study on the interaction between the formal and the informal institutions and its effect on entrepreneurship," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-21, December.
  • Handle: RePEc:spr:izaldv:v:4:y:2015:i:1:p:1-21:10.1186/s40175-015-0027-5 DOI: 10.1186/s40175-015-0027-5
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    More about this item

    Keywords

    Informal network; Court; Formal institution; Entrepreneurship;

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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