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Contract Enforcement in the Early Transition to a Market Economy

  • Jeffrey B. Miller


    (Department of Economics,University of Delaware)

  • Kenneth Koford

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.

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Paper provided by University of Delaware, Department of Economics in its series Working Papers with number 05-11.

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Length: 55 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:dlw:wpaper:05-11
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  1. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  2. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  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. Simon Johnson & John McMillan & Christopher Woodruff, 2001. "Courts and Relational Contracts," NBER Working Papers 8572, National Bureau of Economic Research, Inc.
  5. Blanchard, O & Kremer, M, 1996. "Disorganization," Working papers 96-30, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Simon Johnson & John McMillan & Christopher Woodruff, 2000. "Entrepreneurs and the Ordering of Institutional Reform: Poland, Slovakia, Romania, Russia and Ukraine Compared," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 1-36, March.
  7. 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.
  8. Gray, C.W., 1993. "Evolving Legal Frameworks for Private Sector Development in Central and Eastern Europe," World Bank - Discussion Papers 209, World Bank.
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