Documents contract 21 results

"One of the principal tasks for legal research at the beginning of the 21st century is to reconstruct the understanding of the relationship between the legal system and the market order. After almost three decades of deregulation driven by a belief in the self-equilibrating properties of the market, the financial crisis of 2008 has reminded everyone of the fundamental truth that markets have legal and institutional foundations, without which they cannot effectively function. The chapters in the present volume are the result of work by a group of legal scholars which began in the mid-2000s, at a time when the shortcomings of deregulatory policies were becoming clear in a number of contexts. The chapters address the question of how the language of contract law describes or conceptualises the market order and the relationship of the law to it. The perspectives taken are, in turn, historical, comparative, and context-specific. The focus of the book is on a foundational idea, the concept of capacitas, which signifies a status conferred upon citizens for the purpose of enabling them to participate in the economic life of the polity. In modern legal systems, 'capacity' is the principal juridical mechanism by which individuals and entities are empowered to enter into legally binding agreements and, more generally, to arrange their affairs using the instruments of private law. Legal capacity is thereby the gateway to involvement in the operations of a market economy."

"Legal institutions affect economic outcomes, but how much? This paper documents how costly supplier contract enforcement shapes firm boundaries, and quantifies the impact of this transaction cost on aggregate productivity and welfare. I embed a contracting game between a buyer and a supplier in a general-equilibrium model. Contract enforcement costs lead suppliers to under produce. Thus, firms will perform more of the production process in-house instead of outsourcing it. On a macroeconomic scale, in countries with slow and costly courts, firms should buy relatively less inputs from sectors whose products are more specific to the buyer-seller relationship. I present reduced-form evidence for this hypothesis using a novel measure of relationship-specificity, which I construct from microdata on US case law. I then structurally estimate my model, and perform welfare counterfactuals. Setting enforcement costs to US levels would increase real income by an average of 7.5 percent across all countries, and by an average of 15.3 percent across low-income countries. Hence, transaction costs and the determinants of firm boundaries are important for countries' aggregate level of development."