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Business associations (BAs) are often mentioned among formal private‐order institutions that support contract enforcement. Despite their ubiquity, evidence about their actual roles is still very limited. We explore empirically four mechanisms through which they can support the credibility of contractual commitments: member selection, norm enforcement, dispute resolution and information sharing. In a developed legal context, firm‐level data from an economy‐wide managerial survey show that BAs support contractual trust among members, in members by outsiders as well as in outsiders by members. Member selection and information sharing stand out as the most important mechanisms: They help all three relationship types. Dispute resolution helps overcome opportunism between members only. Formalized norm enforcement is a signal of trustworthiness for outsiders. Economic theory suggests that BAs can help establish trust beyond personal and local networks. We find strong evidence that they indeed do. [ABSTRACT FROM AUTHOR]

How are contracts structured in the presence of relationship-specific investments when legal enforcement is weak? Using a new audit methodology, we show that simple financial contracts in combination with social norms and reputation concerns can sustain relationship-specific transactions. Wholesalers in the market for pens in India use upfront payments rather than increased risk premiums to mitigate risks arising from relationship-specific investments. Upfront payments for printed pens cover only 40 percent of the production costs, highlighting the importance of upfront payments as a screening device. Ex-post, renegotiation is more likely for printed pens, but in a substantial fraction of cases, renegotiation fails. [ABSTRACT FROM AUTHOR]

Offshoring continues to be an important dimension of firms' internationalization choices. However, offshoring also increases contract enforcement costs by inhibiting the coordination and monitoring of performance. Immigrant employees may reduce such costs through their specific knowledge of the employer, their country of birth and access to foreign networks. In this paper, we investigate the role of immigrant employees within firms on firm offshoring, employing rich administrative Swedish microlevel data that include specific information about the characteristics of employees, manufacturing firms and their bilateral offshoring. Our results support the hypothesis that immigrant employees increase offshoring by lowering contract enforcement costs. Hiring one additional immigrant employee is linked to a relatively larger increase in offshoring at the intensive than the extensive margin, on average. The association to offshoring is considerably stronger for skilled immigrant employees and for contract and R&D intensive offshoring. Instrumental variable estimations demonstrate qualitatively similar results, while a placebo test with randomized immigrant employment does not generate any link between immigrants and offshoring. [ABSTRACT FROM AUTHOR]

Achieving equity in litigation is "good." It is about ensuring consideration is adequate. Achieving finality in cases is better, although there is a cost to pay for peace of mind. Disposing of cases at minimal cost with "equity" is best. This article is about defining the meaning of doing "good," aspiring for "better," and achieving "best" under the circumstances at issue in a matter. This article defines "goodness" as "civic virtue," as "equity," and as "law," with the philosophy of law as enforcer of private, moral rights. Put another way, liberty or personal autonomy is the essence of private law transactions with all participants seeking predominance, but how can everyone win? The legal sub-system of society structures litigation to seek prompt closure of cases encouraging equitably assigning rights and duties to promote certainty and stability in social relations. Law functions effectively when government intervenes minimally and allows individuals to exercise freedom. Windfall profits and corresponding losses will occur, but justice demands the rule of law is consistent. Aristotle instructed we should accept law as a "valid and binding" device helping us achieve the "good life," which is a life "worth living" as it promotes meaningful fulfillment and denies blind pursuit of self-interest. For Aristotle, these lofty ends result from harmoniously balancing competing rights and duties, imposing exceptions where legal rules fail, and seeking to secure the "expectation of expectations," instead of defeating the "other," and in this way, law upholds its binding effect (von Leyden, 1967, pp. 2-3). Relying on Aristotle's insight, this article explores fundamental questions including whether "an agreement" is "fair," "lawful," and "good?" This article considers how courts view legal matters to "work out" the validity and "goodness" of promises. [ABSTRACT FROM AUTHOR]

How do firms ensure secure exchange when the rule of law is weak and contracting institutions privilege the politically connected? In developing countries, firms may use social, formal, or political heuristics when selecting business partners, but how these factors jointly impact exchange remains understudied. In this article, I develop these theoretical mechanisms and test their impact with a conjoint experiment administered to 2389 formal and informal firms in Senegal. I find evidence in support of all three theories: To varying degrees, social, state, and political factors simultaneously impact firms' sense of deal security and likelihood of exchange. The results demonstrate the substantial influence of formal predictors of exchange even in an overwhelmingly informal business environment, and also establish the countervailing effects of political connections on trade. These findings suggest that firms in developing countries must contend with an intricate political calculus to ensure their growth. [ABSTRACT FROM AUTHOR]

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The importance of project governance in curbing opportunistic behavior (OB) has been clearly established in the project literature. Although contract governance and trust are considered critical factors that explain project governance, there is a lack of understanding regarding their interplay at various stages of project development. The current study takes a dynamic perspective and breaks down contract governance into contract completeness (CC) and contract enforcement (CE), while differentiating ex-ante trust from ex-post trust. As such, the current study takes a dynamic perspective and the Grossman-Hart-Moore (GHM) model, which aims to investigate how each of the two facets of contract governance and trust intertwine during the management of construction projects as well as their effects on OB. We undertook a questionnaire survey of individuals involved in 342 construction projects in China, and our research results show that, first of all, governance mechanisms at different stages have different inhibitory effects on OB. Taking contract-signing as the boundary, the governance effect of a contract is gradually enhanced, while the governance effect of trust is gradually reduced. Second, ex-ante trust is more important than ex-post trust: the former moderates not only the relationship between CE and OB, but also the influence of CC on OB. Finally, a contract that is overly complete is not conducive to precluding OB, as such completeness can give the contract parties a sense of security that is guaranteed. The current study not only garners insights into project governance research but also provides implications for architectural practitioners in deploying resources that relate to governance mechanisms. [ABSTRACT FROM AUTHOR]

In Côte d'Ivoire, the low participation of smallholder farmers in the credit market remains a matter of concern. This study examines the key determinants of rice farmers' participation in the credit market. We use a Multinomial Conditional Logit model to consider the characteristics related to the use of different credit sources. A total of 588 rice farmers were randomly sampled from seven rice areas. Our findings reveal that gender, age, education level, experience in rice farming, rice plot size, lowland rice farming, extension contact, membership of a farmer-based organization, marketing of paddy rice, and off-farm income significantly influence the use of different credit sources. While credit requirements such as saving plus collateral, kinship/friendship, membership, favoured client, loan maturity, and the distance between borrowers and lenders are credit source-specific variables that significantly determine rice farmers' choices between different credit sources. These empirical results show that in addition to farmer-specific variables, policymakers should consider the characteristics of credit sources for developing a credit market suitable for smallholder farmers. [ABSTRACT FROM AUTHOR]

Scholars have conducted extensive research regarding contractual governance in marketing channels. Operationalizing contractual governance intensity as contract specificity, researchers focused on the impact of contract specificity, while little effort has been paid to the impact of contract enforcement. As a distinct construct of contractual governance mechanism, contract enforcement largely determines the integrity of contracts and the effectiveness of their coordination effects. Dividing contractual governance into contract specificity and contract enforcement, this paper examines the direct and interactive effects of contract specificity and contract enforcement on channel opportunism and conflict. It tries to answer: (1) How do contract specificity and distributor contract enforcement affect supplier opportunism and channel conflict respectively? (2) What are the interactive effect of specificity and enforcement when they are considered simultaneously? The paper proposed a research model by taking contract specificity, distributor contract enforcement and their interaction as the antecedents, and supplier opportunism and channel conflict between distributor and supplier as the consequences. To test the model, with the help of a large domestic household appliance supplier in China, we collected data from the side of distributors, and analyzed the data from 607 valid responses with structural equation model (SEM). Both contract specificity and distributor contract enforcement would respectively inhibit supplier opportunism, and supplier opportunism in turn would be positively associated with channel conflict. On the other hand, distributor contract enforcement would increase, while contract specificity would have an insignificant impact on, channel conflict. In addition, interaction between distributor contract enforcement and contract specificity would reduce both supplier opportunism and channel conflict. This paper tries to make three contributions. First, it investigated the impact of contractual governance in marketing channels in more depth by dividing contractual governance into two dimensions, namely contractual specificity and contract enforcement, enriching the literature of contractual governance in marketing channels. Second, it empirically tested the impacts of contract enforcement on supplier opportunism and channel conflict between distributor and supplier, to which previous studies have paid little attention. Third, it for the first time considered the interactive effects of contract specificity and contract enforcement on channel opportunism and channel conflict. As a result, it provides a new line of explanation for previous inconsistencies in the effect of contract specificity on channel opportunism as well as channel enforcement on channel opportunism. Firms are encouraged to draft specific contracts with their channel partners despite the time and effort required by both parties based on the findings of this research and previous studies. However, contracts should be carefully enforced. According to the findings of this study, if imposed highly strict, contract enforcement may intensify channel conflict between partners. [ABSTRACT FROM AUTHOR]

Capital inflows have a strong presence that influences destination countries’ development of institutions, which can in turn help resuscitate a stopped economy and re-attract capital that was lost during crises such as the recent public health crisis. While the previous literature emphasizes the mechanism that foreign investors press or even threaten the local government for change, this paper explores empirically whether institutional improvement can be achieved through the channel that host countries voluntarily reform institutions in anticipation of potential investments predicted by the exogenous geographical and cultural characteristics of the recipient countries. Given that countries with better institutional quality can accumulate larger FDI stocks, we still find that the need for more FDI, in contrast to FPI and debt, gives higher incentives to host countries to strategically improve their institutions before seeking capital overseas. Moreover, the predicted FDI exerts more prominent impacts on institutions on constraining elite than those involved in launching a business, enforcing contracts, and protecting properties. The results imply that a long-run plan for upgrading elite constraint institutions is crucial for a post-pandemic FDI reboot.

This paper investigates how transactions between firms are organized in an emerging market and how supply network governance affects supply network outcomes and catching up with merging market firms. We explored firms’ choices of governance in a specific context of Vietnam, where a legal institution is characterized by a weak legal system for contractual enforcement and socio-economic institution is characterized by transition from central planning into the market mechanism. This study examines how firms in the cassava sector in Vietnam structure their transactions and how supply network governance relates to certain supply network outcomes. A comparative case study method was adopted in this research. Two cassava supply networks, of which one is traditional type and another is led by a foreign-invested firm, were selected for study. Our findings indicate that institutional context, supply chain structure, product characteristics, relationship investment influence firms’ choices of governance, and firms’ choices of governance affect supply chain network outcomes and local firms’ catching up. In the absence of legal enforcement, market governance is popularly applied in the supply chain with fragmented structure while relational governance is popular used in more concentrated supply network. Higher value creation and more possibilities for catching up but more inequality in income distribution in supply chain with large scale lead firm. Lower value creation, rare possibilities for catching up but more equality in income distribution in supply chain with fragmented small scale firms.

This article investigates if legal origins and governance impact lending by banks in a large sample of low- and middle-income countries for 2004 to 2017. The results revealed that countries with British legal origin, the strength of the legal systems, the rule of law, and regulatory quality are positively and statistically significantly correlated with the credit provided by the banks, among other factors. The estimations based on data for the post-global financial crisis revealed that in countries with British legal origin, the rule of law and regulatory quality mattered intensely in the banking sector's credit. The results imply that the developing countries should continue to sustain and improve their good governance practices and improve on contract enforcements to allow maximum leverage practices of good governance that can positively influence credit diffusion by the banks. [ABSTRACT FROM AUTHOR]

Late medieval Englishmen provided for their wellbeing in the hereafter by purchasing intercession for their souls. They traded valuable landed endowments for the promise of posthumous Masses and prayers whose daily observance contractual counterparties agreed to underwrite for decades, centuries, even eternally. Intercessory foundations so contracted were called chantries. Chantry contracts constituted trades with the dead in the sense that the promisees were deceased when the promisors were supposed to perform. I study the special problems that chantry contract promisees faced in enforcing their rights from the grave and analyze the devices they used for that purpose. Chantry founders wary of their fates in the afterlife showed equal concern for the challenges their contracts would encounter in this life long after they were gone. Founders met those challenges by leveraging the economics of incentives to develop a strategy of chantry contract self-enforcement: profit the living, present and future, for monitoring the contractual performance of promisors and promisors' agents, and for punishing them should they breach. Chantry founders' strategy was successful, enabling trade with the dead. [ABSTRACT FROM AUTHOR]

There is plenty of evidence that judicial efficiency reduces credit rationing and increases lending. In contrast, inefficient courts may lead to borrowers' opportunistic behavior and, as a result, decrease loan performance and the availability of credit. We combine caseload data from commercial courts in Serbia with micro-data on company loans to study the impact of judicial efficiency on loan performance. We document the presence of a robust negative relationship between the clearance rate and the number of days in arrears for companies from the districts under corresponding court jurisdictions. We use financial ratios, industry dummies and time fixed effects to control for the usual determinants of payment ability. [ABSTRACT FROM AUTHOR]

Violations happen frequently in construction projects due to opportunistic intentions and/or the lack of awareness of obligations and/or honest attempts to react to unforeseen circumstances. Dealing with contract violations plays an important role in managing projects. The aim of the research is to investigate the impact of trust, analyzed in terms of the goodwill-based and competence-based trust, on both contract and social enforcement after a contract violation. A questionnaire survey, partially based on semi-structured interviews, was used for data collection. All the data is from the Chinese construction industry since it provides a fertile context to explore the research questions. The results show that: 1) reputation is used as social enforcement in practice and the severity of it is reflected by the scope of the disclosure, 2) the two dimensions of trust have opposite influences on the severity of contract and social enforcement via different mediating effects of perceived intentionality. Specifically, goodwill-based trust reduces the severity of enforcement via decreasing perceived intentionality, while competence-based trust increases the severity of enforcement by increasing perceived intentionality. A comprehensive and nuanced understanding for managing contract violation is generated in this research, which will help project managers to manage the contract violation and the interfirm relationships more effectively. [ABSTRACT FROM AUTHOR]

The importance of project governance in curbing opportunistic behavior (OB) has been clearly established in the project literature. Although contract governance and trust are considered critical factors that explain project governance, there is a lack of understanding regarding their interplay at various stages of project development. The current study takes a dynamic perspective and breaks down contract governance into contract completeness (CC) and contract enforcement (CE), while differentiating ex-ante trust from ex-post trust. As such, the current study takes a dynamic perspective and the Grossman-Hart-Moore (GHM) model, which aims to investigate how each of the two facets of contract governance and trust intertwine during the management of construction projects as well as their effects on OB. We undertook a questionnaire survey of individuals involved in 342 construction projects in China, and our research results show that, first of all, governance mechanisms at different stages have different inhibitory effects on OB. Taking contract-signing as the boundary, the governance effect of a contract is gradually enhanced, while the governance effect of trust is gradually reduced. Second, ex-ante trust is more important than ex-post trust: the former moderates not only the relationship between CE and OB, but also the influence of CC on OB. Finally, a contract that is overly complete is not conducive to precluding OB, as such completeness can give the contract parties a sense of security that is guaranteed. The current study not only garners insights into project governance research but also provides implications for architectural practitioners in deploying resources that relate to governance mechanisms.

This study pivots around the relationship between claimants' contract enforcement (i.e., the degree of pursuing contractual rights when resolving construction disputes) and their satisfaction with the resolution outcome. Little is known about how this relationship is contingent upon informal elements that may replenish contracts—such as the shadow of the future, fairness perception, and trust. To answer these questions, the authors collected data from contractors as claimants. The results show that claimants' satisfaction is positively associated with rigid contract enforcement, with fairness perception, and with trust strengthening this relationship (but trust merely functions in cross-border interorganizational relationships). Flexible contract enforcement regarding obliging behaviors undermines claimants' satisfaction, and this relationship is negatively moderated by the shadow of the future. Hence, fairness perception and trust play a complementary role in the effectiveness of rigid contract enforcement, while the shadow of the future exacerbates the detrimental impact of flexible contract enforcement. This study not only advances our understanding of contractual governance from the reactive perspective and construction dispute management but also enhances practitioners' capability of coping with disputes regarding how to enforce formal contracts and proactively alter informal elements. [ABSTRACT FROM AUTHOR]

This article examines the relationship between foreign direct investment and host countries’ contracting institutions, the rule systems which govern commercial transactions between private actors. Given their liability of foreignness and costly exit options, we suggest that multinational corporations have incentives to influence the formal contracting environment in host countries. Further, host governments are more likely to respond to multinationals’ wishes when they are more dependent on foreign capital markets. We draw on the World Bank’s Lex Mundi dataset (Djankov et al. 2003) on micro-level contracting environment for private actors. Our analysis of a cross section of 98 developing countries suggests that FDI is associated with lower contract enforcement costs, particularly when the host country is more indebted.

This paper examines the role governance institutions play in the adoption of contracts. We develop a simple model of the contracting relationship in a setting where unverifiable outcomes exist and use it to interpret data on groundwater irrigation contracts in Bangladesh. A distinguishing feature of this market is the variety of village-level institutions which impose different degrees of punishment for contract violation. Consistent with the model, we find households adopt contracts that rely on unverifiable outcomes, which are not formally contractible, when punishment for contract violation is weak. Conversely, households adopt contracts that rely on formally contractible and verifiable outcomes when punishment is severe. This evidence is consistent with contract terms being chosen optimally given what is or is not formally contractible. [ABSTRACT FROM AUTHOR]

This paper demonstrates that trust directly influences contracting efficiency. We document that trust reduces demand for contract regulation and positively relates to a high‐quality contracting environment, supporting a substitution hypothesis. Furthermore, contract regulation no longer leads to poor contracting outcomes. These findings suggest that lack of trust significantly explains inefficient contracting institutions. Based on interaction effects, we note that trust could complement formal enforcement in countries with weak regulation. As regulation increases, trust substitutes for contract regulation. Overall, trust positively promotes efficient contracting by reducing burdensome regulation and providing an alternative to formal contract enforcement. [ABSTRACT FROM AUTHOR]

Although contractual governance and trust have been regarded as critical factors for explaining construction project performance, their interplay at different stages of project development is still lacking. From a dynamic perspective, the authors decompose contractual governance as contract completeness (term specificity and adaptability) and contract enforcement, while differentiating trust as ex ante trust and ex post trust. This study aims to investigate how each of the two facets of contractual governance and trust intertwine when managing construction projects and their impacts on performance. A questionnaire survey was conducted to collect data. The results show that ex ante trust positively affects contract completeness, contract enforcement, and ex post trust. Performance is positively influenced by term specificity, contract enforcement, and ex post trust, but negatively influenced by term adaptability. Regarding the interaction effects, contract completeness and ex post trust play complementary roles, while contract enforcement and ex post trust are substitutes. This study not only adds insights into project governance research but also provides implications for construction practitioners in deploying resources regarding governance mechanisms. [ABSTRACT FROM AUTHOR]

To address delay and backlog at civil courts, we propose a procedural rule that we refer to as preordered service to replace sequential service of low-profile cases for breach of contract. Courts preannounce a list that uses uniquely identifying information to rank potential low-profile contracts, like a combination of contracting parties' taxpayer numbers. They use this list to schedule initial hearings of filed low-profile contract cases in that order. In theory, unlike sequential service, preordered service ensures efficiency in a population of investment games through unraveling. Results from a laboratory experiment suggest that it may substantially reduce court caseloads. [ABSTRACT FROM AUTHOR]