The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity

Boehm, Johannes

The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity

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Abstract: I study how supplier contracting frictions shape the patterns of intermediate input use and quantify the impact of these distortions on aggregate productivity. Using the frequency of litigation between US firms as a novel measure to capture the need for formal enforcement, I find a robust relationship between countries' input-output structure and their quality of legal institutions: in countries with high enforcement costs, firms have lower expenditure shares on intermediate inputs in sector pairs where US firms litigate frequently for breach of contract. A quantitative model shows that improvement of contract enforcement institutions would lead to sizeable welfare gains.

Keywords: Contract enforcement costs; Contracting frictions; Transaction costs; Outsourcing; Aggregate productivity (search for similar items in EconPapers)
JEL-codes: D23 F11 O43 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-cta and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in The Review of Economics & Statistics, 2020, vol. forthcoming

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