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Revisiting the Many Legal Institutions that Support Contractual Commitments in a Globalized World

In: Handbook of New Institutional Economics

Author

Listed:
  • Gillian K. Hadfield

    (University of Toronto)

  • Alexander Bernier

    (University of Toronto)

Abstract

Neoclassical economic models assume the enforcement of contracts to be costless and automatic. In practice, litigation and adjudication subject contract enforcement to high transaction costs. The characteristics of the local legal environment and the structure of available legal institutions affect the transaction costs of contract enforcement. Empirical and theoretical literature are beginning to disentangle the contributions that distinct formal legal institutions make in securing contractual commitments at low cost. Well-specified private law and efficient rules of procedure contribute to low-cost enforcement. So do competitive markets for legal talent and a judiciary that has incentives to produce fair and efficient outcomes. Increasingly, institutions outside of the local jurisdiction, including predictable rules of private international law, well-structured competition between courts, and innovations in online dispute resolution, determine enforcement costs. Interdependencies between domestic and transnational legal institutions suggest that well-functioning local courts and legal professions will no longer be sufficient in guaranteeing low-cost access to contract law. Interjurisdictional cooperation and transnational institutions are needed to secure contractual commitments in a globalized world.

Suggested Citation

  • Gillian K. Hadfield & Alexander Bernier, 2025. "Revisiting the Many Legal Institutions that Support Contractual Commitments in a Globalized World," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, edition 0, chapter 12, pages 267-292, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-50810-3_12
    DOI: 10.1007/978-3-031-50810-3_12
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