session 3.1 messick - business environment · microsoft powerpoint - session 3.1 messick.ppt...
TRANSCRIPT
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1
Myth I: Courts Are EverythingEverything
• 2/3rds of firms in Investment Climate surveys have never sued to collect an overdue bill
• Percentage of Firms Using Courts in Last Dispute --
39
30
25
20
6
0
5
10
15
20
25
30
35
40
45
Poland Slovakia Romania Ukraine Russia
Myth II: Courts Are Irrelevant
How Romanian firms enforce contracts
02468
10
Futurebusiness
Courts ADR
Source: Peter Murrell, “Firms Facing New Institutions: Transactional Governance in Romania,” Journal of Comparative Economics 31(4): 695-714 (2003)
Contract Prerequisite: Property Rights
Two essentials. Rights must be:
Secure � protected from theft, fraud and other crimes and from uncompensated seizure by government; and
Verifiable � ownership readily determinable through registries and legal rules
Contract Basics
• Exchange of goods or services– written document unnecessary– enforceability by court irrelevant
• Terms– price– quantity– quality– timing of performance
Contracts: Cash & Carry
� Characteristics� price and quantity determinate� quality observable� simultaneous performance
� Examples:� flea markets� kiosks/street vendors
Complex Contracts
Staggered performance: trade credit, payment by check, deposit or guarantee, goods made to order
Quality: 2nd or 3rd party inspection,�best efforts,� �timely manner�
Price: formula (e.g. cost plus)Quantity: exclusive dealing, requirements
SimpleContracts
Repeat business important?
cash & carry
�� Bilateral
•Hostages
•Tying Agreements
•Franchising & Distribution
Unilateral Commitments
Multilateral
•Reputation & Sanctions
•ADR
•Courts
•Regulatory Agencies
Contract Enforcement Mechanisms
Complex Contracts
��
Involve third party?
no yes
Policy Interventions: Unilateral
• Advertising– access to state-owned media, reasonable rules
governing deception
• Irreversible investments– ownership/long-term leases of land and buildings
• Trademarks/Brands– strengthen registries, deter infringement (private
as well as public enforcement)– create links with international firms (Uganda)
• Hostages– Advance Payment/Postdated check– Security interest/Leasing– Mutual exchanges
• Tying agreements– Credit to sales
• Exclusive dealing arrangements– Franchising/Other supplier distributor
relations
Bilateral Enforcement Mechanisms: Types
• Scrub competition law to remove hurdles to self-enforcing contracts
• Establish registries for moveable property
• Ensure land registries provide “official looking” title documents
• Self-help? Post-dated checks, Repo men & Debt collection agencies
Bilateral Enforcement Mechanisms: Policy Interventions
Policy Issues: Reputation
• Trade Associations– distinguish anticompetitive boycott
from sanctions for contract breach • Credit Bureaus
– balance privacy with right to circulate information
– free entry of international firms• Certification/BBBs
– Underwriter’s Lab/Argentine CPA
ADR: Characteristics
• Voluntary decision to use neutral third party to resolve dispute
• Types: arbitration, mediation, conciliation
• Advantages–accuracy, speed, less
contentious, less costly (?)
ADR: Types
• Free Standing: –Local Chamber of Commerce,
NGO, Trade Association, World Bank
• Court-Connected: –B-H, Albania, Ecuador, Bolivia
ADR: Some Early Results
027346/14%3192B-H
-674214/24%88810Ecuador
170/0%816Albania
643/23%1312WB/Gaza
PendingNot resolved
Resolved/ % of total
Total Cases
Time (months)Country
ADR: Some Early Results
888
319
13 8
214
463 0
0
100
200
300
400
500
600
700
800
900
1000
Ecuador B-H WB/Gaza Albania
Num
ber
of C
ases
Blue: Cases Referred to ADRRed: Cases Resolved
ADR: Why Results Meager
ADR: Government-Investor Disputes
Means: Bilateral Investment Treaties, Regional Trade Agreements (NAFTA, CAFTA), ICSID, ICCAre International Arbitrators Biased Against LDCs?
50%50%
Governments Firms
ADR: Policy Interventions
� Law should permit parties to choose:� arbiter � governing law � form of decision
� Narrow permitted court challenges�within 90 days of award� only for incapacity, notice, bias, public
policy
Judicial Reform: Donor Projects
• Bank experience:– Only in past 12 years, mix of
approaches, no standard project design
– Early results mixed: few successes (Venezuela, Tanzania, Slovakia), many question marks
• Other donors’ experience similar
Judicial Reform: Early Success
0100200300400500600700800
Barquesimeto CiudadBolivar
Median days to resolve case
Impact of Reform on Debt Collection Cases
BeforeAfter
Judicial Reform: Bank Record
•Stand alone:
– 5 for 8 or .625
•Africa components:
– 13 for 21 or .619
Judicial Reform: Lessons
• Can be highly political – Commercial courts – Opposition from lawyers, judges,
clerks, litigants (debtors, tenants)• Evidence based dialogue essential
– Develop reform– Tame opponents
• Altering incentives key
Judicial Reform: New Directions
• Greater emphasis on quantitative analysis -- focus on performance measurement
• Expanding scope to complementary institutions–Enforcement of court judgments–Effect of regulation on price and
quality of lawyer and notarial services
Debt Contract Reforms
050
100150200250300350400450500
OECD EAP S A ECA SSA MENA LAC
Days to Enforce Contract
Judicial Reform: Debt Collection
• Allow specialized collection agencies
• Verify creditors’ story (Mexico)• Permit cognovit notes or equivalent• Assure fast-track procedures/small
claims court function• Revise enforcement methods
Regulatory Agencies
• Contracts between government and private firm
• Arose from need to renegotiate concessions for water, street car lines, and other utilities in 19th century
• Unlike other third-party mechanisms, regulator affiliated with one of the parties
• Hence need for devices to assure impartiality
• Analytical and Advisory– Review advertising, trademark, and
competition laws and those governing credit bureau establishment and operation
– Ensure party to ICSID and regional and bilateral treaties with dispute provisions
• Operations– Support credit bureaus, trade groups,
BBBs,and other certification agencies
Translating into Operations