Since the focus of our paper will be the enforcement of judgments, it is useful to comment on how well judgments are enforced in Mexico compared to other countries. Using the methodology described in Djankov, et. al. (2003), the 2008 Doing Business rankings place Mexico 49th out of 178 countries ranked in terms of how quickly a contract can be enforced. This time is counted from the moment the plaintiff files the lawsuit in court until payment. In terms of time to enforce a judgment, however, Mexico’s rank is 121. We therefore see that the Mexican judicial system seems particularly inefficient at enforcing judgments.<sup>2</sup> One contribution of our paper will be to show how an overly formalistic judicial system results in poor enforcement in practice.

Our paper is also related to several strands of the literature on litigation. The first of these strands is the theoretical and empirical work on litigation costs, which have typically focused on two aspects of these costs. One litigation cost that has been studied is the cost of going to court, including delay in the resolution of the conflict. This work generally shows that the costs of going to court affect the probability of settlement as well as the characteristics of cases that end up in court. This means that the selection of cases that go to trial, as well as the time it takes to reach a settlement, can differ across parties with different costs of going to court. Fenn and Rickman (1999), for example, estimate a structural model and find lower litigation costs imply longer delays in reaching a settlement. Eisenberg and Farber (1997) develop a model in which the distribution from which a plaintiff’s litigation cost is drawn affects plaintiff win rates and affects time to settlement. They posit that individuals are more heterogeneous in terms of their litigation costs than are corporations. They then show that, consistent with their theoretic model, individuals have higher trial rates and lower win rates at trial.

Another cost that has been studied is the cost of legal services, including the rules for shifting these costs between parties to a dispute. Many studies have compared the American rule in which each party pays its own legal costs with the English rule, in which the winning party is compensated for its legal costs by the losing party. For example, Gong and McAfee (2000) show that fee-shifting increases the stakes of going to trial and therefore benefits lawyers by increasing demand for legal services. Gross and Syverud (1991) find higher settlement rates when plaintiffs pay their own litigation costs.

Our paper is also related to papers that study the effects of lawyers on lawsuit outcomes. This literature has most often used a principal-agent framework to analyze moral hazard problems between clients and lawyers. Rules governing the compensation of lawyers, such as the percentage of contingency fee charged, vary across jurisdictions and countries, and this has allowed for the testing of models that predict how the incentives of the lawyer will affect litigation mention that there is very little concrete evidence on how much actual enforcement takes place.

> 2 The data on total time to enforce a contract are available from http://www.doingbusiness.org/ExploreTopics/EnforcingContracts/. The data on time to enforce a judgment, which is a component of the total time to enforce a contract, was provided to us by the Doing Business staff and are available upon request.

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