Resolution, Recovery and Survival: The Evolution of Payment Disputes in Post-Socialist Europe

Abstract

What determines the mechanism chosen to resolve a commercial dispute? To what degree does the aggrieved recover damages? And does the relationship survive in the aftermath? The answers to these questions affect expectations as to the costs of transacting and, thereby, the development of markets. But they have received almost no attention in the economic literature on the post-socialist transition. This article exploits a rich survey of small and medium-sized manufacturing enterprises in three post-socialist countries to explain behavioral responses to an inter-firm payment dispute. Particular attention is given to how the evolution of disputes is sensitive to both the geographic distance between trade partners and membership in a business association.