The relational underpinnings of formal contracting and the welfare consequences of legal system improvement

We consider how parties’ formal contracts are underpinned by their ongoing relationship and how welfare changes as the legal system improves. Regardless of impatience, the parties write formal contracts that they would not honor–despite stipulated penalties–if they interacted only once. The change in welfare with an improvement in the legal system can be ambiguous and even non-monotonic.

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Year of publication:	2013
Authors:	Hermalin, Benjamin E. ; Li, Larry ; Naughton, Tony
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 119.2013, 1, p. 72-76
Publisher:	Elsevier
Subject:	Legal system improvement \| Relational contracting \| Formal and informal contracting

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Type of publication:	Article
Classification:	K4 - Legal Procedure, the Legal System, and Illegal Behavior ; C7 - Game Theory and Bargaining Theory
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010662396