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Contract Enforcement in the Early Transition to a Market Economy

Author

Listed:
  • 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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    File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2005/UDWP2005-11.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Gray, C.W., 1993. "Evolving Legal Frameworks for Private Sector Development in Central and Eastern Europe," World Bank - Discussion Papers 209, World Bank.
    3. 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.
    4. 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.
    5. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    6. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1091-1126.
    7. 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.
    8. 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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    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.

    More about this item

    Keywords

    Bulgaria; contract enforcement; contract institutions; contract law; legal institutions;

    JEL classification:

    • P5 - Economic Systems - - Comparative Economic Systems
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; 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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