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How private contract enforcement mechanisms can succeed where public institutions fail: the case of Juhocukor a.s

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  • Gow, Hamish R.
  • Streeter, Deborah H.
  • Swinnen, Johan F. M.

Abstract

The enforcement of contracts is necessary for efficient exchange and investment in economic activities. Contracts can be enforced through a variety of mechanisms, both public and private. However, in many developing and transitional countries these public institutions are either absent or ineffective in ensuring contract enforcement. Under such conditions, private enforcement mechanisms may provide a suitable replacement for public enforcement institutions. This may be done externally through a third party or internally through self-enforcing agreements. This paper analyzes the use of "self-enforcing" arrangements or "internal" private enforcement mechanisms. Using a case study of an agri-business in a transition economy- Juhocukor a.s., a Slovakian sugar processor- we show that the use of "internal" private contract enforcement mechanisms can have a significant positive effect on output and efficiency for both partners to the exchange transaction in an environment characterized by the absence or ineffectiveness of public enforcement institutions.© 2000 Elsevier Science B.V. All rights reserved.
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Suggested Citation

  • 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, Blackwell, vol. 23(3), pages 253-265, September.
  • Handle: RePEc:eee:agecon:v:23:y:2000:i:3:p:253-265
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    1. Mathijs, Erik & Swinnen, Johan F M, 1998. "The Economics of Agricultural Decollectivization in East Central Europe and the Former Soviet Union," Economic Development and Cultural Change, University of Chicago Press, vol. 47(1), pages 1-26, October.
    2. Gow, Hamish R & Swinnen, Johan F M, 1998. "Up- and Downstream Restructuring, Foreign Direct Investment, and Hold-Up Problems in Agricultural Transition," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 25(3), pages 331-350.
    3. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    4. Klein, Benjamin, 1996. "Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships," Economic Inquiry, Western Economic Association International, vol. 34(3), pages 444-463, July.
    5. Macours, Karen & Swinnen, Johan F. M., 2000. "Causes of Output Decline in Economic Transition: The Case of Central and Eastern European Agriculture," Journal of Comparative Economics, Elsevier, pages 172-206.
    6. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    7. Johan F. M. Swinnen, 1999. "The political economy of land reform choices in Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(3), pages 637-664, November.
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