The Transition from Relational to Legal Contract Enforcement

No 23-2006, Working Papers from Singapore Management University, School of Economics

Abstract: 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.

Keywords: relational contract; legal contract enforcement; institutions; endowment inequality; economic development (search for similar items in EconPapers)
JEL-codes: O1 K49 C72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-law and nep-sea
Date: Written 2006-06
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Published in SMU Economics and Statistics Working Paper Series

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