Contract rules in codes and statutes : easing business across the cleavages of legal origins

Contract theory qualifies legal origins theory by focusing on codified default rules, which ease the conclusion of enforceable contracts. We have selected ten economically important codified contract types containing default rules and eight paradigm countries in one or two of three categories: mother countries of legal origins, financial centers, or newly industrialized economies (France, Germany, Japan, South Korea, Switzerland, Taiwan, UK-England and the US). We exclude countries having received their laws as colonial “transplants” and countries in the process of legal transformation. The economic impact of default rules is detectable by econometric analysis based on panel data inference over prolonged periods (1870–2008). Codified default rules favor economic performance, the higher their number the better the performance. The results are controlled for time and countries fixed effects, are confirmed by counterfactual simulations and are robust. We also test whether the presence of all ten contract-types can compensate the absence of a financial center advantage, and find that they do so in the civil law mother countries and the two newly industrialized countries of our sample. The Swiss case shows that cumulating default rule advantage and financial center advantage results in superior economic performance. While qualifying legal origins theory, our results strongly confirm institutional economics in its core of contract theory.