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.

  • Courts: the lex mundi project

    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.

  • FDI and the costs of contract enforcement 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.

  • Input tariffs, speed of contract enforcement, and the productivity of firms in India

    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.

  • Judicial system reform in Italy: a key to growth

    Author(s) : Esposito, Gianluca, Mr Sergi Lanau, and Sebastiaan Pompe Journal : IMF Working Paper No. 14/32 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 incourtproceedings, 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 reviewingcourtfees, improving the new mandatory mediation scheme, strengtheningcourtmanagement, and reforming the appeal system.

  • Limited enforcement and the organization of production

    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.

  • Opting out of good governance

    Author(s) : C. Fritz Foley, Paul Goldsmith-Pinkham, Jonathan Greenstein, Eric Zwick Journal : NBER Working Paper No. 19953, Issued in March 2014 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.

  • Relationship-specificity, incomplete contracts, and the pattern of trade

    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.

  • Are institutions in developing countries malleable?

    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.

  • Structural reforms to boost inclusive growth in Greece

    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

  • Judicial Quality and Regional Firm Performance: The Case of Indian States

    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

  • Boosting productivity through greater small business dynamism in Canada

    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

  • Institutional development, transaction costs and economic growth: evidence from a cross-country investigation

    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.

  • Contract Enforcement and Investment: A Systematic Review of the Evidence

    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.

  • Chinese judicial justice on the cloud: a future call or a Pandora’s box? An analysis of the ‘intelligent court system’ of China

    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.

  • Reforming the Speed of Justice: Evidence from an Event Study in Senegal

    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. We exploit the staggered rollout across the seven civil and commercial chambers of the regional court of Dakar and high-frequency data on the treatment of the 2012/15 caseload. We find a large reduction in the length of the pre-trial stage of 73 days (0.5 SD). The effect is similar for small and large cases, and is attributable to an increase in the decisiveness of each hearing, as the number of fast-tracked cases increases, the number of case-level pre-trial hearings is reduced, while judges are more likely to set hard deadlines. These results are in line with a model in which judges idly delay cases. These gains in speed do not come at the cost of quality.

  • The impact of the judiciary on entrepreneurship: Evaluation of Pakistan's “Access to Justice Programme”

    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

  • Production of laws and delays in court decisions

    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.

  • Court performance around the world: a comparative perspective

    Author(s) : Dakolias, Maria Journal : World Bank technical paper ; no. WTP 430 Abstract : Increasing importance has been placed on an effective and efficient judiciary by governments and civil society. However, apart from decisions that they render, little is known about court performance trends. The judicial reform experiences so far have made it clear that more information is needed to review and compare trends among different countries. This paper addresses the efficiency aspect of court performance, as 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. This paper reviews 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.

  • Judges, Courts and Economic Development: The Impact of Judicial Human Capital on the Efficiency and Accuracy of the Court System

    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.

  • Economics of Court Performance: an Empirical Analysis

    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

  • Legal Infrastructure, Judicial Independence, and Economic Development

    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 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. The empirical literature, to the extent that it has investigated the relationship between courts and economic growth, has focused on judicial independence. Judicial independence is, of course, only one aspect of quality courts. Nevertheless, it is relatively easy to measure and probably correlated with other indices of court quality. It thus serves as a rough proxy for the quality of legal infrastructure. There is some evidence that judicial independence is associated with economic growth, but the evidence is mixed and causation is unclear.

  • Overview of Specialized Courts

    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.

  • The Cost of Resolving Small Business Conflicts: the Case of Peru

    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

  • The Legal Environment, Banks, and Long-Run Economic Growth

    Author(s) : Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, Robert W. Vishny Journal : National Bureau of Economic Research, Working Paper No. 5879, January 1997 Abstract : Using a sample of 49 countries, we show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt makers. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.

  • Legal Institutions, Political Economy, and Development

    Author(s) : Gani Aldashev Journal : Oxford Review of Economic Policy 25 Abstract : This article reviews some of the recent literature on the relationship between the legal system and economic development. We also look at the historical, socio-cultural, and political factors that explain the differences in the characteristics of legal systems across countries and thus affect the link between the legal environment and economic outcomes. Although the field of law and economics of developing countries is still in its youth, it is growing rapidly and is a fertile ground for exciting new findings, both theoretical and empirical. Further progress in this field is likely to come from the studies of the elements of the legal system other than the substantive law (enforcement and dispute resolution) and should move beyond specific analyses of the impact of particular success or failure stories towards more general analyses of the determinants and outcomes of successful legal institutions.

  • The Divergence of Legal Procedures

    Author(s) : Aron Balas, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer* Journal : American Economic Journal Abstract : Simeon Djankov et al. (2003) introduce a measure of the quality of contract enforcement—the formalism of civil procedure—for 109 countries as of 2000. For 40 of these countries, we compute procedural formalism every year since 1950. We find that large differences in procedural formalism between common and civil law countries existed in 1950 and widened by 2000. For this area of law, the findings are inconsistent with the hypothesis that national legal systems are converging, and support the view that legal origins exert long lasting influence on legal rules.

  • The Legal Environment, Banks, and Long-Run Economic Growth

    Author(s) : Ross Levine Journal : Journal of Money, Credit and Banking, Volume 30, Issue 3, Pages 596-613, August 1998 Abstract : This paper examines the relationship between the legal system and banking development and traces this connection through to long-run rates of per capita GDP growth, capital stock growth, and productivity growth. The data indicate that countries where the legal system (1) emphasizes creditor rights and (2) rigorously enforces contracts have better-developed banks than countries where laws do not give a high priority to creditors and where enforcement is lax. Furthermore, the exogenous component of banking development - the component defined by the legal environment - is positively and robustly associated with per capita growth, physical capital accumulation, and productivity growth.