The Transition from Relational to Legal Contract Enforcement

• Main Author: HUANG, Fali
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2006
• Subjects: Relational contract; legal contract enforcement; institutions; endowmentinequality; economic development; Growth and Development; Social Welfare
• Online Access: https://ink.library.smu.edu.sg/soe_research/906; https://ink.library.smu.edu.sg/context/soe_research/article/1905/viewcontent/legal_contract_enforcement.pdf
• Institution: Singapore Management University

This paper studies the transition of contract enforcement institutions. The prevalence of relational contracts, low legal quality, strong cultural preference for personalistic relationships, low social mobility, and highly unequal endowment form a cluster of mutually reinforcing institutions that hinder economic development. The cultural element per se does not necessarily reduce social welfare though it may slow down the legal development, while the real problem lies in endowment inequality and low social mobility. Thus a more equal distribution of resources may be the ultimate key to unravel the above interlocking institutions. These results are generally consistent with the empirical evidence.