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The Impact of Contract Enforcement Costs on Value Chains and Aggregate Productivity

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  • Johannes Boehm

    (Department of Economics, Sciences Po)

Abstract

I study how supplier contracting frictions shape the patterns of intermediate input use and quantify the impact of these distortions on aggregate productivity. Using the frequency of litigation between US firms as a novel measure to capture the need for formal enforcement, I find a robust relationship between countries' input-output structure and their quality of legal institutions. In countries with high enforcement costs, firms have lower expenditure shares on intermediate inputs in sector pairs where US firms litigate frequently for breach of contract. A quantitative model shows that improvement of contract enforcement institutions would lead to sizable welfare gains.

Suggested Citation

  • Johannes Boehm, 2022. "The Impact of Contract Enforcement Costs on Value Chains and Aggregate Productivity," The Review of Economics and Statistics, MIT Press, vol. 104(1), pages 34-50, March.
    • Handle: RePEc:tpr:restat:v:104:y:2022:i:1:p:34-50
    DOI: 10.1162/rest_a_00940
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    Cited by:

    1. Eppinger, Peter & Kukharskyy, Bohdan, 2021. "Contracting institutions and firm integration around the world," European Economic Review, Elsevier, vol. 137(C).

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