Coping with Uncertainty: The Role of Contracts in Russian Industry During the Transition to the Market

41 Pages Posted: 22 Aug 2009  

Kathryn Hendley

University of Wisconsin-Madison Law School; University of Wisconsin - Madison - Department of Political Science

Date Written: August 20, 2009

Abstract

Russia's transition to the market was tortuous. The literature presents the 1990s as a period when contracts were largely irrelevant due to the inadequacies of the substantive law and the inability of courts to protect property rights. This article explores how contracts were, in fact, used by Russian industrial firms through a series of in-depth case studies. At all of the case study firms, management had developed standard form contracts. Their willingness to rely on them when problems arose was dictated primarily by the nature of their relationships with their trading partners, not by a lack of faith in the legal system. Where the relationships were grounded in personal trust, managers were reluctant to invoke their rights under the contract. Where relationships were grounded in calculative trust (mutual need intertwined with mutual suspicion), managers did not shy away from legalistic remedies. Enterprises that relied on in-kind exchanges had little need to rely on written contracts due to the ephemeral character of these transactions. The lack of reliable information about the credit-worthiness of prospective customers combined with the lack of reputational sanctions for contractual violations made life difficult for all of the case study firms.

Keywords: Contracts, Trust, Russia, Transition

JEL Classification: D21, D74, D82, K12, P31

Suggested Citation

Hendley, Kathryn, Coping with Uncertainty: The Role of Contracts in Russian Industry During the Transition to the Market (August 20, 2009). Univ. of Wisconsin Legal Studies Research Paper No. 1089. Available at SSRN: https://ssrn.com/abstract=1458507 or http://dx.doi.org/10.2139/ssrn.1458507

Kathryn Hendley (Contact Author)

University of Wisconsin-Madison Law School ( email )

975 Bascom Mall
Madison, WI 53706
United States
301-405-3476 (Phone)
301-405-3542 (Fax)

University of Wisconsin - Madison - Department of Political Science ( email )

1050 Bascom Mall
Madison, WI 53706
United States

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