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The Transition from Relational to Legal Contract Enforcement

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  • Fali Huang

    (SMU)

Abstract

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.

Suggested Citation

  • Fali Huang, 2006. "The Transition from Relational to Legal Contract Enforcement," Development Economics Working Papers 22441, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:develo:22441
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    References listed on IDEAS

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    Cited by:

    1. Mr. Joshua Charap & Jelena Pavlovic, 2009. "Development of the Commercial Banking System in Afghanistan: Risks and Rewards," IMF Working Papers 2009/150, International Monetary Fund.

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    More about this item

    Keywords

    relational contract; legal contract enforcement; institutions; endowment inequality; economic development;
    All these keywords.

    JEL classification:

    • K49 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Other
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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