Courts and Relational Contracts

Simon Johnson and John McMillan

The Journal of Law, Economics, and Organization, 2002, vol. 18, issue 1, 221-277

Abstract: Post-communist countries offer new evidence on the relative importance of courts and relationships in enforcing contracts. Belief in the effectiveness of courts has a significant positive effect on the level of trust shown in new relationships between firms and their customers. Well-functioning courts also encourage entrepreneurs to try out new suppliers. Courts are particularly important when specific investments are needed for a relationship to develop. While relationships can sustain existing interactions, workable courts help new interactions to start and develop. Copyright 2002, Oxford University Press.

Date: 2002
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