Contracts, Dispute Resolution, and Citizen Welfare: Evidence from Commercial Courts in India

Multidisciplinary Type I Proposal (exploratory research)

The judiciary is an important branch of the state that plays a key role in enforcing rule of law, protecting citizens’ rights, and enforcing contracts to enable efficient functioning of markets. Recent research has shown that judicial capacities vastly vary over space and time, and constraints on judicial capacity have important ramifications for firm productivity, job creation, and overall economic development (Ponticelli and Alencar, 2016; Amirapu, 2021 Rao, 2023). In LMICs, including India, there aren’t enough judges or courts for the volume of economic transactions and the existing judges are overburdened with complex workload. This has immediate ramifications on citizen welfare particularly through resolution of disputes they are engaged in.  This study has the potential to improve citizens' experiences engaging with the justice system.

In this project proposal, we seek to leverage random assignment of commercial and contractual cases to judges in newly created commercial courts in India (Govt of India EODB, 2023) to examine the impact of timely resolution through court-mediated settlement on repayment of outstanding loans and subsequent lending decisions by banks to firms and the household sector. To answer this question well, we propose to leverage two different methodologies: (a) use administrative data and exploit exogenous variation generated by random assignment of commercial cases to judges, and (b) identify policy solutions to improve contract enforcement that can be experimentally evaluated to generate reliable cost-benefit policy parameters.