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Contract Enforcement in the Early Transition to a Market Economy

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  • Jeffrey B. Miller

    (Department of Economics,University of Delaware)

  • Kenneth Koford

Abstract

How were contracts among firms enforced in the early phase of a transition economy when firms lacked experience with commercial contracts or legal procedures? What were their views of their new business environment? We interviewed a sample of Bulgarian firms, including private, state-owned and cooperative firms in 1994. Consistent with Williamson’s (1994) theories, complex contracts were quite limited, sometimes implying the breakdown of important markets, but we also found that even spot-market contracts had severe problems of bilateral dependency. Having been "burned" in previous transactions, firms were very cautious in dealing with new potential trading partners and tried to work closely with trustworthy counterparts. These results are consistent with Klein, Crawford and Alchian’s (1978) theory.

Suggested Citation

  • Jeffrey B. Miller & Kenneth Koford, 2005. "Contract Enforcement in the Early Transition to a Market Economy," Working Papers 05-11, University of Delaware, Department of Economics.
    • Handle: RePEc:dlw:wpaper:05-11
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    References listed on IDEAS

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    1. 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.
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    5. Simon Johnson & John McMillan & Christopher Woodruff, 2007. "Courts and Relational Contracts," Palgrave Macmillan Books, in: Erik Berglöf & Gérard Roland (ed.), The Economics of Transition, chapter 8, pages 243-297, Palgrave Macmillan.
    6. Clague, Christopher, 1991. "Relative Efficiency, Self-Containment, and Comparative Costs of Less Developed Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 39(3), pages 507-530, April.
    7. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
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    9. 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.
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    Cited by:

    1. Jeffrey B. Miller & Stoyan Tenev, 2005. "State and Ownership Reforms in Transition Economics: China vs. the Orthodoxy," Working Papers 05-10, University of Delaware, Department of Economics.

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    Keywords

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    JEL classification:

    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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