Paper #1329

Title:

Standardized enforcement: Access to justice vs contractual innovation

Authors:

Nicola Gennaioli and Enrico Perotti

Date:

April 2009 (Revised: June 2012)

Abstract:

We model the different ways in which precedents and contract standardization shape the development of markets and the law. In a setup where more resourceful parties can distort contract enforcement to their advantage, we find that the introduction of a standard contract reduces enforcement distortions relative to precedents, exerting two effects: i) it statically expands the volume of trade, but ii) it crowds out the use of innovative contracts, hindering contractual innovation. We shed light on the large scale commercial codification occurred in the 19th century in many countries (even Common Law ones) during a period of booming commerce and long distance trade.

Keywords:

contracting, standardization, inequality, legal evolution.

JEL codes:

K12, K41, G3

Area of Research:

Macroeconomics and International Economics

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