DP8478 Standardized Enforcement: Access to Justice vs Contractual Innovation
Author(s): | Nicola Gennaioli, Enrico C Perotti |
Publication Date: | July 2011 |
Keyword(s): | imperfect judicial enforcement, optimal contracts |
JEL(s): | K00 |
Programme Areas: | Public Economics, Financial Economics, Development Economics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=8478 |
We model the different ways in which precedents and contract standardization shape the joint development of markets and the law. In a setting where more resourceful parties can distort contract enforcement, we find that the introduction of standard contracts reduces enforcement distortions relative to precedents, exerting two effects: i) it statically expands the volume of trade, but ii) it hampers commercial and legal innovation by crowding out the use of innovative contracts. We offer a rationale for the large scale commercial codification that occurred in Common Law systems in the XIX century during a period of booming commerce and long distance trade.