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The Transition from Relational to Legal Contract Enforcement


  • Fali Huang

    () (School of Economics and Social Sciences, Singapore Management University)


This paper studies the transition of contract enforcement institutions. The preva- lence of relational contracts, low legal quality, strong cultural preference for personalistic relationships, low social mobility, and highly unequal endowment form a cluster of mutually reinforcing institutions that hinder economic development. The cultural element per se does not necessarily reduce social welfare though it may slow down the legal development, while the real problem lies in endowment inequality and low social mobility. Thus a more equal distribution of resources may be the ultimate key to unravel the above interlocking institutions. These results are generally consistent with the empirical evidence.

Suggested Citation

  • Fali Huang, 2006. "The Transition from Relational to Legal Contract Enforcement," Working Papers 23-2006, Singapore Management University, School of Economics.
  • Handle: RePEc:siu:wpaper:23-2006

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    References listed on IDEAS

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    7. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-950, October.
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    10. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
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    12. John Shuhe Li, 2003. "Relation-based versus Rule-based Governance: an Explanation of the East Asian Miracle and Asian Crisis," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 651-673, September.
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    Cited by:

    1. Joshua Charap & Jelena Pavlovic, 2009. "Development of the Commercial Banking System in Afghanistan; Risks and Rewards," IMF Working Papers 09/150, International Monetary Fund.

    More about this item


    relational contract; legal contract enforcement; institutions; endowment inequality; economic development;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • K49 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Other
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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