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|
|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.