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Research on Enforcing Contracts

Doing Business considers the following list of papers as relevant for research on enforcing contracts. Some papers—denoted with an asterisk (*)—use Doing Business data for their empirical analysis. If we've missed any important research, please let us know.

Author(s): Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer

Journal: NBER Working Paper No. 8890, 2002 

Abstract: In cooperation with Lex Mundi member law firms in 109 countries, we measure and describe the exact procedures used by litigants and courts to evict a tenant for non-payment of rent and to collect a bounced check. We use these data to construct an index of procedural formalism of dispute resolution for each country. We find that such formalism is systematically greater in civil than in common law countries. Moreover, procedural formalism is associated with higher expected duration of judicial proceedings, more corruption, less consistency, less honesty, less fairness in judicial decisions, and inferior access to justice. These results suggest that legal transplantation may have led to an inefficiently high level of procedural formalism, particularly in developing countries.

Author(s): John S. Ahlquist, Aseem Prakash

Journal: Policy Sciences June 2010, Volume 43, Issue 2, 2009

Abstract: This article examines the relationship between foreign direct investment and host countries’ contracting institutions, the rule systems which govern commercial transactions between private actors. Given their liability of foreignness and costly exit options, we suggest that multinational corporations have incentives to influence the formal contracting environment in host countries. Further, host governments are more likely to respond to multinationals’ wishes when they are more dependent on foreign capital markets. We draw on the World Bank’s Lex Mundi dataset (Djankov et al. 2003) on micro-level contracting environment for private actors. Our analysis of a cross section of 98 developing countries suggests that FDI is associated with lower contract enforcement costs, particularly when the host country is more indebted.

Author(s): Ahsan, Reshad N.

Journal: Journal of International Ecnomics, Volume 90, Issue 1, Pages 181-192, May 2013

Abstract: This paper extends the literature on trade liberalization and firm productivity (TFP) by examining the complementarities between the speed of contract enforcement and the productivity gains from input tariff liberalization. It does so by using firm-level panel data from India along with an objective measure of judicial efficiency at the state level. The results suggest that for a 10 percentage point decline in input tariffs, firms in the state at the 75th percentile of judicial efficiency gain an additional 3.6 percentage points in productivity when compared to firms in the state with the median level of judicial efficiency. The results also indicate that the complementarities are strongest for firms in industries that are contract intensive and imported-capital intensive. These results are robust to using a matching estimator to address the self-selection of firms into states with high judicial efficiency and an IV approach to instrument input tariffs. In addition, the results are also robust to the addition of state-year interaction fixed effects to control for time-varying, unobservable state characteristics. Thus, the results indicate that rapid contract enforcement is necessary to maximize the productivity benefits from input tariff liberalization. (C) 2012 Elsevier B.V. All rights reserved.

Author(s): Sergi Lanau 

Journal: IMF Working Paper

Abstract: The inefficiency of the Italian judicial system has contributed to reduced investments, slow growth and a difficult business environment. The enforcement of civil and commercial claims suffers from excessive delays in court proceedings, resulting in a very large number of pending cases. The Italian authorities have over the years taken steps to remove bottlenecks and speed up judicial proceedings. While these measures are generally steps in the right direction, more can be done. Consideration could be given, inter alia, to reviewing court fees, improving the new mandatory mediation scheme, strengthening court management, and reforming the appeal system.

Author(s): Erwan Quintin

Journal: Journal of Macroeconomics, Volume 30, Issue 3, Pages 1222-1245, September 2008

Abstract: This paper describes a dynamic, general equilibrium model designed to gauge the importance of contractual imperfections in the form of limited enforcement for international differences in the organization of production. In the model, limited enforcement constrains agents to operate establishments below their optimal scale. As a result, economies where contracts are enforced more efficiently tend to be richer and emphasize large scale production. Calibrated simulations of the model reveal that these effects can be large and account for a sizeable part of the observed differences in the size distribution of manufacturing establishments between the United States, Mexico and Argentina.

Author(s): C. Fritz Foley, Paul Goldsmith-Pinkham, Jonathan Greenstein, Eric Zwick

Journal: National Bureau of Economic Resarch

Abstract: Cross-listing on a U.S. exchange does not bond foreign firms to follow the corporate governance rules of that exchange. Hand-collected data show that 80% of cross-listed firms opt out of at least one exchange governance rule, instead committing to observe the rules of their home country. Relative to firms that comply, firms that opt out have weaker governance practices in that they have a smaller share of independent directors. The decision to opt out reflects the relative costs and benefits of doing so. Cross-listed firms opt out more when coming from countries with weak corporate governance rules, but if firms based in such countries are growing and have a need for external finance, they are more likely to comply. Finally, opting out affects the value of cash holdings. For cross-listed firms based in countries with weak governance rules, a dollar of cash held inside the firm is worth $1.52 if the firm fully complies with U.S. exchange rules but just $0.32 if it is non-compliant.

Author(s): Nathan Nunn

Journal: The Quarterly Journal of Economics, Vol. 122, No. 2, Pages 569-600, May 2007

Abstract: Is a country's ability to enforce contracts an important determinant of comparative advantage? To answer this question, I construct a variable that measures, for each good, the proportion of its intermediate inputs that require relationship-specific investments. Combining this measure with data on trade flows and judicial quality, I find that countries with good contract enforcement specialize in the production of goods for which relationship-specific investments are most important. According to my estimates contract enforcement explains more of the pattern of trade than physical capital and skilled labor combined.

Author(s): Kant, Chander

Journal: Journal of Policy Modeling

Abstract: Economists have recently emphasized Solow growth factors, physical capital, labor, and technology (“proximate” causes) depend on fundamentals like geography, culture, and institutions. I consider one of these fundamentals, institutions, and analyze whether they are malleable by a contemporary economic variable, globalization. The globalization I consider is of production through multinational corporations. Using the recently available data on institutional quality for almost all countries, I show institutional quality is higher with a greater FDI presence in developing countries. Nevertheless, there is no statistically significant effect on the same institutional variablesin developed countries. By some measures, the income-gap between the rich and poor countries has worsened in the post-1950 period, and a consensus has emerged that poor institutions are to be blamed. A policy of encouraging FDI islikely to have the additional effect of improving institutions in developing countries and may have a greater potential to reduce income gaps than has been realized.

Author(s): Daude, Christian 

Journal: OECD Economics Department Working Papers

Abstract: This paper takes stock of the main structural reforms that Greece has undertaken since 2010, those currently proposed and that are in the process of implementation, and quantifies the medium and long‑term effects on output. Special attention is given to three issues that are relevant to understanding reform dynamics in Greece: i) the short-term impact of reforms; ii) the effect of some reforms on income inequality and other socioeconomic outcomes; iii) implementation problems that might undermine the ability of structural reforms to deliver their expected outcomes. The reforms, if fully implemented, could raise output by more than 13% over the next decade. Reforms in product markets are particularly important in boosting growth. Poverty and inequality have increased despite policies to mitigate the social impacts of Greece’s deep depression since 2009. Better social policies are needed to strengthen the social safety net and make growth more inclusive. Much of the burden of adjustment has been borne by labour. Labour market institutions should balance the objectives of increasing jobs, reallocating workers to where they can earn the most, and ensuring the fruits of the economic recovery are widely shared.

Author(s): Chakraborty, Pavel

Journal: Journal of Comparative Economics

Abstract: Higher quality institutions help a firm to invest in institutional-dependent inputs, which might affect a firm’s performance. I use data for Indian manufacturing that matches stateby-state firm-level data with state-by-state data on particularly important institution – Judicial quality. Results show that judicial quality is a significant determinant of higher firm performance – both for exports and domestic sales. My most conservative estimate suggests that a 10% increase in judicial quality of a region helps to increase the sales of a firm by 1–2%. I explicitly control for the ‘selection’ effect by using a two-step Average Treatment Effect (ATE) procedure. The results also support my initial findings. My results are robust to a battery of robustness checks

Author(s): Carey, David; Lester, John; Luong, Isabelle

Journal: OECD Economics Department Working Papers

Abstract: Small business dynamism is a feature of an SME sector that contributes to overall productivity growth, not an end in itself. Such dynamism increases productivity growth by reallocating resources towards more productive firms and strengthening the diffusion of new technologies. Small business dynamism in Canada has declined in recent decades, as in other OECD countries, but overall it remains in the middle of the range, with some indicators above average and others below. Framework economic policies are generally supportive of small business dynamism, especially labour regulation, but there is scope to reduce regulatory barriers to product market competition. Canada has many programmes to support small businesses. Some of the largest programmes are not well focused on reducing market failures. Focusing support more on reducing clear market failures would increase the contribution of these programmes to productivity growth and living standards. This would likely entail redirecting support from small businesses in general to start-ups and young firms with innovative projects, which would boost small business dynamism

Author(s): C. Mitja Kovac, Rok Spruk

Journal: Journal of Institutional Economics

Abstract: This paper seeks to quantify the impact of transaction costs on cross-country economic growth. Our evidence from a cross-country panel data regression analysis reveals a persistent and robust negative effect of increasing transaction costs on the path of economic growth. The growth-enhancing effects of lower transaction costs are confirmed after controlling for the set of conditioning variables and further demonstrated in a cross-country growth model calibration. The results provide evidence that transaction costs might indeed be central to the study of cross-country productivity differences, suggest the importance of contractual relations and indicate their significant impact on cross-country economic performance over time.

Author(s): Diego Aboal, Nelson Noya, Andrés Rius

Journal: World Development Volume 64, December 2014, Pages 322-338

Abstract: This “systematic review” focuses on the empirical research that evaluates the causal link between contract enforcement and investment. The evidence available in a variety of academic media, reviewed with established procedures, provides some but weak support for the existence of such link. During 1990–2010 we only found 19 independent studies that empirically test the relationship, and only one that directly examines the effects of an actual institutional reform. Few of the studies test alternative explanations, perform robustness checks, or critically assess the findings. In sum, the broadly accepted hypothesis of direct causation is still awaiting strong empirical backing. 

Author(s): Alison (Lu) Xu

Journal: Journal Information & Communications Technology Law Volume 26, 2017 

Abstract: The incorporation of information and communication technology as part of the process of Chinese judicial reform has appeal to both legislators and policy-makers who focus on its positive features. The launch of the ‘intelligent court system’ represents part of this process to equip the judiciary with the most up-to-date modern technology that aims to reshape case resolution procedure by way of moving the legal process online. The central aspect of this is to establish an online case resolution process through an ‘e-court’ or ‘online court’, which will shift the judicial process towards working within the expectation of modern commercial practice and technological capacity. However, the realisation of the ideals underlining the project is not without problems. An examination of the two different models introduced for the pilot e-court system, indicates that insufficient consideration has been given with regards to its potential adverse effects and that more thought needs to be given to how these issues should be addressed in order to improve the role and function of online courts in China.

Author(s): Florence Kondylis and Mattea Stein 

Journal: Working Paper, 2016 

Abstract: This paper illustrates the role of justice reforms in increasing the celerity of adjudication. Theoretically describing judges’ incentives provides a taxonomy of the nature of legal delays (idle or strategic) central to designing effective legal reforms. We examine these theoretical predictions by conducting an event study of a reform that sets a deadline on the length of civil and commercial pretrial procedures in Senegal. 

Author(s): MatthieuChemin

Journal: Journal of Public Economics
Volume 93, Issues 1–2, February 2009, Pages 114-125 

Abstract: In 2002, the Pakistani government implemented a judicial reform that cost $350 million or 0.1% of Pakistan's 2002 GDP. This reform did not involve increased incentives for judges to improve efficiency but merely provided them with more training. Nonetheless, the reform had dramatic effects on judicial efficiency and consequently on entrepreneurship: judges disposed of a quarter more cases and entry rate of new firms increased by half due to the reform. Using data from the World Bank Group Entrepreneurship Database, our estimates suggest that this translates into an increase of Pakistan's GDP by 0.5%.

Author(s): GiuseppeDi Vita 

Journal: International Review of Law and Economics
Volume 30, Issue 3, September 2010, Pages 276-281 

Abstract: In this paper we attempt to explain how the delays in civil contentiousness are related to the excessive number of laws produced. On the basis of our case study, conducted using Italian data, it is possible to affirm that the complexity of the legal system may contribute to the excessive duration of civil disputes. 

Author(s): Dakolias, Maria

Journal: World Bank technical paper ; no. WTP 430 

Abstract: This paper addresses the efficiency aspect of court performance recognizing that quality is left for later research. Efficiency was chosen because it can be quantitatively measured using objective data. In addition, congestion, cost and delay are some of the problems most often complained about by the public in many countries. This paper reviews the data collected from eleven countries on three continents and provides a description of performance. The main areas of comparison include the number of cases filed, resolved, and pending per judge, the clearance and congestion rates, time to resolve a case, the number of judges, and the cost of a case. The paper also reviews the recent trends within each country and discusses some possible reforms. 

Author(s): Gwendolyn G. Ball; Jay P. Kesan

Journal: Paper presented at the 15th Annual Conference of the International Society for New Institutional Economics, Stanford University, Stanford, CA, June 16–18 

Abstract: This paper attempts to fill that gap by estimating the impact of judicial experience and the human capital it creates on the efficiency and accuracy of patent litigation in the U.S. Patent litigation is particularly good for testing such hypotheses because all patent cases in the U.S. are adjudicated in the U.S. District Court System. 

Author(s): Kenneth W. Dam

Journal: John M. Olin Law & Economics Working Paper 287 (Second Series), University of Chicago Law School, Chicago. 

Abstract: 

Author(s): Virginia Rosales-Lo ´pez

Journal: European Journal of Law and Economics June 2008, Volume 25, Issue 3, pp 231–251

Abstract: This paper proposes an empirical analysis of Spanish court performance using the economic approach. An econometric model will be estimated in order to answer two basic questions: (1) why some courts’ output it is greater than others? (2) Could courts produce a higher output using their actual resources? In addition it will be determine, by means of an analysis of variance (ANOVA), whether courts showing higher than average output have dictated resolutions with a higher reversal rate. In cooperation with Lex Mundi member law firms in 109 countries, we measure and describe the exact procedures used by litigants and courts to evict a tenant for non-payment of rent and to collect a bounced check. We use these data to construct an index of procedural formalism of dispute resolution for each country. We find that such formalism is systematically greater in civil than in common law countries. Moreover, procedural formalism is associated with higher expected duration of judicial proceedings, more corruption, less consistency, less honesty, less fairness in judicial decisions, and inferior access to justice. These results suggest that legal transplantation may have led to an inefficiently high level of procedural formalism, particularly in developing countries.

Author(s): Daniel M. Klerman  

Journal: 19 Pacific McGeorge Global Business & Development Law Journal 427-34 (2007)
USC CLEO Research Paper No. C06-1
USC Law Legal Studies Paper No. C06-1 19 Pacific McGeorge Global Business & Development Law Journal 427-34 (2007) USC CLEO Research Paper No. C06-1 USC Law Legal Studies Paper No. C06-1

Abstract: Economic theory generally supports the idea that judicial independence, and, more generally, high quality courts, facilitate economic growth. Good, independent courts enforce contracts and protect property, and by doing so encourage the investment which is crucial for economic development. Nevertheless, judicial independence and good courts are not necessary to investment, because there are other mechanisms which can enforce contracts and protect property, albeit perhaps not as well as courts. Contracts can be enforced by reputation, without recourse to the courts. Similarly, the government can protect property through executive restraint and policing, even if constitutional protections are weak and private litigation is ineffective. Thus, economic growth often starts without strong courts, and efforts to improve the quality of the judiciary are often the consequence, not the cause, of economic development.

Author(s): Markus B. Zimmer

Journal: International Journal for Court Administration, Vol. 2, No. 1, 2009 

Abstract: This Overview has two primary purposes. First, it provides judicial system officials with the arguments in favor of and in opposition to the creation of specialized courts. Second, it offers recommendations for consideration by judicial system officials when they are deliberating whether to establish specialized courts. This Overview also provides a review of types of specialized courts that have been established in court systems in some countries in Europe and the United States. This review should inform discussions by judicial leaders as to what specialized courts might be appropriate for their system. 

Author(s): Herrero, Álvaro; Henderson, Keith

Journal: Inter-American Development Bank Paper, Sustainable Development Department Best Practices Series 

Abstract: This study analyzes the impact of judicial inefficiency on small businesses in Peru. It is based on the hypothesis that chronic problems in the region's judicial systems have negative consequences on the development of micro, small and medium-sized businesses. The analysis focuses, first, on the relationship between small businesses and the legal system. Secondly, it looks at decisions made by small businesses to mitigate the effects of poor performance by the courts. Lastly, it identifies several ways in which judicial inefficiency is transferred to the business sector. The analysis also attempts to quantify the economic impact of judicial inefficiency - See more at: https://publications.iadb.org/handle/11319/5177#sthash.dmef8Dgq.dpuf