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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

Author

Listed:
  • Chakraborty, Tanika

    () (Indian Institute of Management)

  • Mukherjee, Anirban

    () (University of Calcutta)

  • Saha, Sarani

    () (Indian Institute of Technology Kanpur)

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 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. Our result remains robust after controlling for a variety of household and district level characteristics.

Suggested Citation

  • Chakraborty, Tanika & Mukherjee, Anirban & Saha, Sarani, 2015. "Court-ship, Kinship and Business: A Study on the Interaction between the Formal and the Informal Institutions and Its Effect on Entrepreneurship," IZA Discussion Papers 8887, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp8887
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    References listed on IDEAS

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    Cited by:

    1. Jasmine Mondolo, 2018. "How do informal institutions influence inward FDI? A systematic review," "Marco Fanno" Working Papers 0218, Dipartimento di Scienze Economiche "Marco Fanno".

    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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