Law enforcement by courts : political economy and impact on firms
The subject of this thesis is judicial enforcement of contracts and property rights and its economic implications. The first chapter introduces the topic, discusses the issues involved in empirical research on law enforcement, and surveys the literature. The second chapter develops an analytical method for empirical identification of relative policy preferences and competence of judges. The third chapter studies the impact of judicial selection on law enforcement. The fourth chapter analyses the effect of predictability of law enforcement on firms' finances. In chapter two, I develop a model of judicial decision making in a two tier court system. It shows that relative preferences of the two courts can be identified by comparing appellate court reversal rates for different types of lower court decisions. I use this result to analyze the data on Russia's commercial courts which I collected for this purpose. The findings show that regional courts favour small firms relatively more than courts of appeal. In chapter three, I compare selection of judges by the legislator with that by the executive branch. First, I analyze the differences in the incentives of the two offices theoretically. Second, I empirically exploit a natural experiment in judicial appointment procedures in Russian courts. I find that judges selected by the legislature favour small firms more than judges appointed by the executive. In the fourth chapter, I show both empirically and analytically that greater predictability in law enforcement encourages credit to firms. The data from Russia indicates that more predictable courts stimulate lending by raising the number of firms that have access to bank financing. In contrast, trade credit is only weakly affected by court performance.