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Tying, Risk-Sharing, and `Lock-In': An Investigation of Countertrade Contracts

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  • Marin, Dalia

Abstract

The paper sees countertrade - the tying of trade flows - as an insurance contract that mitigates contractual hazards and reduces the incentive for ex post `hold-up' when parties are `locked' in a relationship after they have made specific investment. This way tying is seen as a commitment device against renegotiation during contract execution when investments are sunk. Moreover, tying is seen as an institutional setting that is effective in securing technology spillovers from developed countries to Eastern Europe (PCPEs) and LDCs. Based on a sample of 230 countertrade contracts signed between firms in OECD countries and PCPEs and LDCs in the period 1984-8, this view of countertrade is found to be consistent with the data.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 673.

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Date of creation: Jun 1992
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Handle: RePEc:cpr:ceprdp:673

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Keywords: Contract Theory; Countertrade; Eastern Europe; Trade Policy;

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