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Contracting in the Shadow of a Corrupt Court

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  • Vai-Lam Mui

Abstract

This paper presents an incomplete contracting model to show how judicial corruption and judicial favoritism can lead to distortions in agents' incentives to invest in relation-specific assets and cause inefficiency. I also show that while an increase in the judge's income always increases investment, it is possible that a strongly favoritism-reducing increase in the authority's propensity to monitor the judiciary can actually reduce, instead of increase, investment in equilibrium. The implications of these findings for the study of institutional reforms, the relationship between the institutional environment and institutional arrangements, and the political economy of connections are explored.

Suggested Citation

  • Vai-Lam Mui, 1999. "Contracting in the Shadow of a Corrupt Court," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(2), pages 249-249, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(199906)155:2_249:citsoa_2.0.tx_2-a
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    Cited by:

    1. Cooter, Robert & Garoupa, Nuno, 2000. "The Virtuous Circle of Distrust: A Mechanism to Deter Bribes and Other Cooperative Crimes," Berkeley Olin Program in Law & Economics, Working Paper Series qt83c0k3wc, Berkeley Olin Program in Law & Economics.
    2. Ari Van Assche & Galina A. Schwartz, 2013. "Contracting Institutions and Ownership Structure in International Joint Ventures," CIRANO Working Papers 2013s-04, CIRANO.
    3. Peter Bardsley & Quan Nguyen, 2005. "Rent Seeking and Judicial Bias in Weak Legal Systems," Department of Economics - Working Papers Series 925, The University of Melbourne.
    4. Jin-Li Hu & Chung-Huang Huang & Wei-Kai Chu, 2004. "Bribery, hierarchical government, and incomplete environmental enforcement," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 6(3), pages 177-196, September.
    5. Nicholas Argyres & Lyda Bigelow, 2010. "Innovation, Modularity, and Vertical Deintegration: Evidence from the Early U.S. Auto Industry," Organization Science, INFORMS, vol. 21(4), pages 842-853, August.
    6. Cooter Robert D. & Garoupa Nuno, 2014. "A Disruption Mechanism for Bribes," Review of Law & Economics, De Gruyter, vol. 10(3), pages 241-263, November.
    7. Van Assche, Ari & Schwartz, Galina A., 2013. "Contracting institutions and ownership structure in international joint ventures," Journal of Development Economics, Elsevier, vol. 103(C), pages 124-132.
    8. Juin-jen Chang & Chia-ying Liu, 2007. "The Negligence Rule in the Presence of Judicial Corruption and Social Norms," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(2), pages 203-215, June.
    9. Kretschmer, Anne, 2002. "Maßnahmen zur Kontrolle von Korruption: Eine modelltheoretische Untersuchung," Arbeitspapiere 25, University of Münster, Institute for Cooperatives.
    10. Bond Philip, 2009. "Contracting in the Presence of Judicial Agency," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-34, November.

    More about this item

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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