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Courts and contract enforcement in transition agriculture: theory and evidence from Poland
Author(s) -
Beckmann Volker,
Boger Silke
Publication year - 2004
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.2004.tb00262.x
Subject(s) - enforcement , transaction cost , business , action (physics) , law and economics , database transaction , public economics , economics , industrial organization , law , finance , physics , quantum mechanics , political science , computer science , programming language
The paper investigates theoretically and empirically the role of courts for contract enforcement in transition agriculture. In a survey of 306 Polish farmers conducted in 1999, only 38.5% respondents reported to believe that they could use courts to enforce contracts with their most important customer. Furthermore, those who believed 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' responses can be explained by cost‐benefit calculations regarding the use of courts, (2) the legal ‘enforceability’ of contracts depends not only on 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 business relationship, and by the availability of alternative enforcement mechanisms.