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Courts And Contract Enforcement In Transition Agriculture: Theory And Evidence From Poland

  • Beckmann, Volker
  • Boger, Silke

The paper investigates theoretically and empirically the role of courts for contract enforcement in transition agriculture. In a survey of 306 Polish hog farmers conducted in 1999, only 38.5% of them reported to believe that they could use courts to enforce contracts with their most important customer. Furthermore, those who believe the legal system could be used would accept significant financial losses before taking action. We develop a theoretical model, based on the costs and benefits of court enforcement, which captures the boundary between contracts to be regarded as "enforceable" and "not-enforceable" and, simultaneously, the threshold of taking legal action. The empirical analysis strongly supports our model: (1) the farmers' responds can be explained by cost-benefit calculations regarding the use of courts, (2) the legal "enforceability" of contracts depends on not only the efficiency of the legal system, but also on the attributes of the transaction, the contracts and the relationship between buyer and seller, and (3) the threshold of taking legal action is significantly influenced by indirect costs of court enforcement, such as the disruption of a valuable relationship, and by the availability of alternative enforcement mechanisms.

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File URL: http://purl.umn.edu/25878
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Paper provided by International Association of Agricultural Economists in its series 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa with number 25878.

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Date of creation: 2003
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Handle: RePEc:ags:iaae03:25878
Contact details of provider: Web page: http://www.iaae-agecon.org/
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  1. Hamish R. Gow & Johan F. M. Swinnen, 2001. "Private Enforcement Capital and Contract Enforcement in Transition Economies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 686-690.
  2. Kali, Raja, 1999. "Endogenous Business Networks," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 615-36, October.
  3. Silke Boger, 2001. "Quality and contractual choice: a transaction cost approach to the polish hog market," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 28(3), pages 241-262, October.
  4. Fafchamps, Marcel, 1996. "The enforcement of commercial contracts in Ghana," World Development, Elsevier, vol. 24(3), pages 427-448, March.
  5. Lyons, Bruce R, 1996. "Empirical Relevance of Efficient Contract Theory: Inter-firm Contracts," Oxford Review of Economic Policy, Oxford University Press, vol. 12(4), pages 27-52, Winter.
  6. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
  7. McMillan, John & Woodruff, Christopher, 1999. "Dispute Prevention without Courts in Vietnam," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 637-58, October.
  8. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  9. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November.
  10. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo Group Munich.
  11. repec:umd:umdeco:murrelllaw is not listed on IDEAS
  12. Woodruff, Christopher, 1998. "Contract enforcement and trade liberalization in Mexico's footwear industry," World Development, Elsevier, vol. 26(6), pages 979-991, June.
  13. Kathryn Hendley & Peter Murrell & Randi Ryterman, 1998. "Law, Relationships, and Private Enforcement: Transactional Strategies of Russian Enterprises," Electronic Working Papers 98-001, University of Maryland, Department of Economics.
  14. Simon Johnson & John McMillan, 2002. "Courts and Relational Contracts," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(1), pages 221-277, April.
  15. 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 of Agricultural Economists, International Association of Agricultural Economists, vol. 23(3), September.
  16. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  17. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
  18. 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.
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