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Courts and Relational Contracts

  • Simon Johnson
  • John McMillan
  • Christopher Woodruff

Post-communist countries offer new evidence on the relative importance of courts and relationships in enforcing contracts. Belief in the effectiveness of courts has a significant positive effect on the level of trust shown in new relationships between firms and their customers. Well-functioning courts also encourage entrepreneurs to try out new suppliers. Courts are particularly important when specific investments are needed for a relationship to develop. While relationships can sustain existing interactions, workable courts help new interactions to start and develop.

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File URL: http://www.nber.org/papers/w8572.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8572.

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Date of creation: Oct 2001
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Publication status: published as Simon Johnson & John McMillan, 2002. "Courts and Relational Contracts," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(1), pages 221-277, April.
Handle: RePEc:nbr:nberwo:8572
Note: CF
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