Contract Enforcement and Economic Performance

Satu Kahkonen and Patrick Meagher
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Patrick Meagher: IRIS Center, University of Maryland, College Park

Journal of African Development, 2001, vol. 4, issue 1, 9-30

Abstract: What is the relative importance of state and non-state institutions of contract and contract enforcement for economic activity? In particular what is the role of state institutions in governing transactions? In both developed and developing countries, contracts are governed by a multitude of state and non-state institutions. Different societies are likely to have different institutions depending on their history, culture, and political system. Contrary to conventional wisdom, exchange governed by the state is not necessarily more efficient than exchange governed by non-state mechanisms. The relative efficiency of different contract enforcement mechanisms depends on the characteristics of the good to be exchanged, the cost of the use of the mechanism, and the predictability of the outcome. State legal institutions do, however, have an important role to play. Thy can facilitate exchange among anonymous individuals and firms and provide impartial and predictable enforcement of contracts.

Date: 2001
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