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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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  1. Leonardo Felli & Alessandro Riboni & Luca Anderlini, 2007. "Statute Law or Case Law?," 2007 Meeting Papers 952, Society for Economic Dynamics.
  2. Ernst Fehr & Oliver D. Hart & Christian Zehnder, 2008. "Contracts as Reference Points - Experimental Evidence," NBER Working Papers 14501, National Bureau of Economic Research, Inc.
  3. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation: A solution to the Hold-Up Problem," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
  4. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  5. Oliver Hart & John Moore, 2008. "Contracts as Reference Points," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 1-48.
  6. Alan Schwartz & Robert Scott, . "Contract Theory and the Limits of Contract Law," Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series yale_lepp-1011, Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy.
  7. Anthony Niblett & Richard Posner & Andrei Shleifer, 2008. "The Evolution of a Legal Rule," NBER Working Papers 13856, National Bureau of Economic Research, Inc.
  8. Giacomo A. M. Ponzetto & Patricio A. Fernandez, 2008. "Case Law versus Statute Law: An Evolutionary Comparison," The Journal of Legal Studies, University of Chicago Press, vol. 37(2), pages 379-430, 06.
  9. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760.
  10. Nicola Gennaioli & Stefano Rossi, 2013. "Contractual Resolutions of Financial Distress," Review of Financial Studies, Society for Financial Studies, vol. 26(3), pages 602-634.
  11. 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.
  12. Daughety, Andrew F & Reinganum, Jennifer F, 2000. "On the Economics of Trials: Adversarial Process, Evidence, and Equilibrium Bias," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 365-94, October.
  13. Paul R. Milgrom & John Roberts, 1985. "Relying on the Information of Interested Parties," Cowles Foundation Discussion Papers 749, Cowles Foundation for Research in Economics, Yale University.
  14. Josh Lerner & Antoinette Schoar, 2005. "Does Legal Enforcement Affect Financial Transactions? The Contractual Channel in Private Equity," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 223-246.
  15. Klerman, Daniel & Mahoney, Paul G., 2007. "Legal origin?," Journal of Comparative Economics, Elsevier, vol. 35(2), pages 278-293, June.
  16. Nicola Gennaioli, 2013. "Optimal Contracts With Enforcement Risk," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 59-82, 02.
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