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The Impact of the Judiciary on Economic Activity

  • Matthieu Chemin

This paper examines the consequences of slow judiciaries on firms' contracting behaviour in India. After deriving testable implications from a game theoretical model, I examine how case pendency rates in India's state courts affect the contracting behaviour of 170,000 small non-agricultural informal firms from the 2000 National Sample Survey's 55th round. I find that a slow judiciary implies more breaches of contract, discourages firms from undertaking relationship-specific investments, impedes firms' access to formal financial institutions, and favours inefficient dynasties. Moving a firm from the highest to the lowest pendency state would result in a 10% improvement in firm performance.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0724.

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Date of creation: 2007
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Handle: RePEc:lvl:lacicr:0724
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