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Courts and Relational Contracts

Government and Institutions

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. A major role of the courts is to support the development of new relationships. While relationships can sustain existing interactions, workable courts help new interactions to start and develop.

72wp.pdf (623.94 KB)
Simon Johnson
John McMillan
Christopher Woodruff
Publication Date
November, 2000