I wanted to follow up on Mohammad Amin’s excellent post on the enforcement of laws. One of the papers mentioned in the post is Safavian and Sharma (2007), which finds that laws protecting the rights of creditors are more effective when they can be enforced by efficient courts.
What does it mean to be an inefficient court? Kaplan and Sadka (2008) study this question using data gathered from a labor court in Mexico. In particular, they study cases in which a judge has decided that a worker is entitled to compensation from the firm, typically because the worker was fired without cause.
That's the end of the story, right?
Wrong! More than half of the time (56%), the worker gives up trying to enforce the judgment. Why is it so hard to enforce a judgment?
Doing Business in Mexico 2007 gets it exactly right when it says “The defendant may delay the notification process by simply refusing to answer the door.” In order to get the judgment enforced, the firm has to be formally notified. This can be pretty hard when the firm doesn’t want to be notified.