Contract enforcement, litigation, and economic development

Massenot, Baptiste (2010): Contract enforcement, litigation, and economic development.

Abstract

This paper introduces a model of litigation in a growth framework. Investors use litigation to enforce their financial contracts with entrepreneurs. A contest ensues in which both agents hire lawyers to increase their probability of winning the trial. The issue and the cost of the contest determine how much investors are willing to lend. More lawyers are hired when judicial efficiency is lower and damages are higher. Higher judicial efficiency and tighter restrictions on the supply of lawyers benefit the economy, while the impact of higher damages is ambiguous. Some empirical evidence is also presented.

• Item Type: MPRA Paper
• Language: English
• Keywords: contract enforcement, litigation, lawyers, economic development
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K41 - Litigation Process

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