Court-ship, Kinship and Business: A Study on the Interaction between the Formal and the Informal Institutions and Its Effect on Entrepreneurship

Tanika Chakraborty (), Anirban Mukherjee () and Sarani Saha
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Anirban Mukherjee: University of Calcutta

No 8887, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper we theoretically and empirically examine how the interaction between the formal court system and the informal loan network affects a household's decision to start a business. We find that when the formal court system is weak, expansion of informal credit network leads to the proliferation of business. However, with a sufficiently strong court system, expansion of credit network has a negative effect on business prospects. This result is explained by the contradictions between formal laws and norms used by informal networks. Our result remains robust after controlling for a variety of household and district level characteristics.

Keywords: formal institution; court; informal network; entrepreneurship (search for similar items in EconPapers)
JEL-codes: K12 L26 O17 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015-02
New Economics Papers: this item is included in nep-ent, nep-iue, nep-law, nep-net and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in: IZA Journal of Labor & Development, 2015, 4, 7 (2015)

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Journal Article: Court-ship, kinship and business: a study on the interaction between the formal and the informal institutions and its effect on entrepreneurship (2015)
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