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Investment, and Contract Hold-Ups in Transition: Evidence from Hungary

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  • Gow, Hamish R.
  • Swinnen, Johan F.M.

Abstract

This paper analyses empirically the effect of "hold-ups" on capital investment in farms using a sample of 318 Hungarian enterprises, surveyed over 1997. A negative relationship arises between capital investment and the incidence of hold-up behaviour. This relationship is affected by farm's wealth and liquidity position, the quality of legal enforcement of contracts, by whether farms have contracted sales to foreign processors, and whether they are established as successors to pre-reform organisations rather than start-up businesses.

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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 2002 International Congress, August 28-31, 2002, Zaragoza, Spain with number 24853.

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Date of creation: 2002
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Handle: RePEc:ags:eaae02:24853

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Keywords: contracting; hold-ups; firm investment; transition; Agricultural Finance;

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  1. Gow, Hamish R. & Streeter, Deborah H. & Swinnen, Johan F.M., 2000. "How private contract enforcement mechanisms can succeed where public institutions fail: the case of Juhocukor a.s," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 23(3), September.
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  9. Chirinko, Robert S & Schaller, Huntley, 1995. "Why Does Liquidity Matter in Investment Equations?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 527-48, May.
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  16. Allen, Douglas W & Lueck, Dean, 1995. "Risk Preferences and the Economics of Contracts," American Economic Review, American Economic Association, vol. 85(2), pages 447-51, May.
  17. Gourieroux, Christian & Monfort, Alain & Renault, Eric & Trognon, Alain, 1987. "Generalised residuals," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 5-32.
  18. Vella, Francis, 1993. "A Simple Estimator for Simultaneous Models with Censored Endogenous Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 441-57, May.
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  20. Dale Jorgenson, 1967. "The Theory of Investment Behavior," NBER Chapters, in: Determinants of Investment Behavior, pages 129-188 National Bureau of Economic Research, Inc.
  21. Klein, Benjamin, 1996. "Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships," Economic Inquiry, Western Economic Association International, vol. 34(3), pages 444-63, July.
  22. Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999. "Contract Enforcement in Transition," CEPR Discussion Papers 2081, C.E.P.R. Discussion Papers.
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