Freeman Spogli Institute for International Studies Center on Democracy, Development, and the Rule of Law Stanford University


CDDRL Publications


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Courts and Relational Contracts

Journal Article

Authors
Simon Johnson
John McMillan
Christopher Woodruff

Published by
The Journal of Law, Economics & Organization, Vol. 18 no. 1, page(s) 221-277
April, 2002


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.

Topics: Economics