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Standardized enforcement: Access to justice vs contractual innovation

  • Nicola Gennaioli
  • Enrico Perotti

We model the different ways in which precedents and contract standardization shape the development of markets and the law. In a setup where more resourceful parties can distort contract enforcement to their advantage, we find that the introduction of a standard contract reduces enforcement distortions relative to precedents, exerting two effects: i) it statically expands the volume of trade, but ii) it crowds out the use of innovative contracts, hindering contractual innovation. We shed light on the large scale commercial codification occurred in the 19th century in many countries (even Common Law ones) during a period of booming commerce and long distance trade.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1329.

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Date of creation: Apr 2009
Date of revision: Jun 2012
Handle: RePEc:upf:upfgen:1329
Contact details of provider: Web page: http://www.econ.upf.edu/

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  8. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
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  11. Nicola Gennaioli & Stefano Rossi, 2006. "Contractual resolutions of financial distress," Economics Working Papers 1316, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2012.
  12. Klerman, Daniel & Mahoney, Paul G., 2007. "Legal origin?," Journal of Comparative Economics, Elsevier, vol. 35(2), pages 278-293, June.
  13. Gennaioli, Nicola, 2011. "Optimal Contracts with Enforcement Risk," CEPR Discussion Papers 8405, C.E.P.R. Discussion Papers.
  14. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, June.
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