Courts and Relational Contracts

Simon Johnson, John McMillan and Christopher Woodruff

Chapter 8 in The Economics of Transition, 2007, pp 243-297 from Palgrave Macmillan

Abstract: Abstract Post-communist countries offer new evidence of 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.

Date: 2007
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DOI: 10.1057/978-1-349-74092-5_8

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