Self-enforcing contracts with persistence Articles uri icon

publication date

  • May 2022

start page

  • 72

end page

  • 87


  • 128

International Standard Serial Number (ISSN)

  • 0304-3932

Electronic International Standard Serial Number (EISSN)

  • 1873-1295


  • We show theoretically that, in the presence of persistent productivity shocks, the reliance on self-enforcing contracts due to limited legal enforcement may provide a possible rationale why countries with the worse rule of law might exhibit: (i) higher aggregate TFP volatilities, (ii) larger dispersion of firm-level productivity, and (iii) greater wage inequality. We also provide suggestive empirical evidence consistent with the model's aggregate implications. Finally, we relate the model's firm-level implications to existing empirical findings.


  • Economics
  • Politics


  • dynamic moral hazard; limited commitment; persistence; productivity; relational contracts