Work

How private contract enforcement mechanisms can succeed where public institutions

Year: 2000

Type: article

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.

Source: Agricultural Economics

DOI: 10.1111/j.1574-0862.2000.tb00277.x

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

Institutions: University of Illinois Urbana-Champaign, KU Leuven, Cornell University, European Commission

Language: English

Topic: Law, Economics, and Judicial Systems

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Peace, justice, and strong institutions, Decent work and economic growth

Open Access status: green

Funders: Agricultural and Applied Economics Association, European Commission