Order with Law: Social Capital, Civil Litigation, and Economic Development

Abstract

I use records on commercial litigation in New South Wales to assess the role of norms and social capital during economic development. The data indicate that total disputes fell over time, whereas the rate of out of court settlements increased. Litigation rates were initially higher in frontier areas that arguably needed to adapt institutions to new circumstances because norms and standards were as yet undeveloped. The fraction of settled cases was significantly lower in frontier areas and areas without market access. Patterns related to jury trials, plaintiff recovery rates, and attorney representation are also assessed. The results are consistent with the theory that cooperative solutions emerge as areas gain access to markets, and suggest that order and law are complementary inputs into the process of economic development.