Working Paper: NBER ID: w8572
Authors: Simon Johnson; John McMillan; Christopher Woodruff
Abstract: 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.
Keywords: No keywords provided
JEL Codes: D2; G0; K0; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| belief in the effectiveness of courts (K41) | trust among trading partners (F10) |
| trust among trading partners (F10) | trade credit offered to new partners (L14) |
| effective courts (K40) | transaction costs (D23) |
| effective courts (K40) | formation of new business relationships (L14) |
| relational contracts (L14) | effectiveness under specific conditions (C90) |