The Impact of Contract Enforcement Costs on Value Chains and Aggregate Productivity

Abstract I study how supplier contracting frictions shape the patterns of intermediate input use and quantify the impact of these distortions on aggregate productivity. Using the frequency of litigation between US firms as a novel measure to capture the need for formal enforcement, I find a robust relationship between countries' input-output structure and their quality of legal institutions. In countries with high enforcement costs, firms have lower expenditure shares on intermediate inputs in sector pairs where US firms litigate frequently for breach of contract. A quantitative model shows that improvement of contract enforcement institutions would lead to sizable welfare gains.

• Publication year

  2020

• Venue

  Review of Economics and Statistics

• Publication date

  2020-06-19

• Fields of study

  Economics

• Identifiers
  DOI 10.1162/rest_a_00940
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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