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Courts and Relational Contracts

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Listed:
  • Simon Johnson
  • John McMillan
  • Christopher Woodruff

Abstract

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.

Suggested Citation

  • Simon Johnson & John McMillan & Christopher Woodruff, 2001. "Courts and Relational Contracts," NBER Working Papers 8572, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8572
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    References listed on IDEAS

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    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • G0 - Financial Economics - - General

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