Tying, Risk-Sharing, and `Lock-In': An Investigation of Countertrade Contracts

Dalia Marin

No 673, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The paper sees countertrade - the tying of trade flows - as an insurance contract that mitigates contractual hazards and reduces the incentive for ex post `hold-up' when parties are `locked' in a relationship after they have made specific investment. This way tying is seen as a commitment device against renegotiation during contract execution when investments are sunk. Moreover, tying is seen as an institutional setting that is effective in securing technology spillovers from developed countries to Eastern Europe (PCPEs) and LDCs. Based on a sample of 230 countertrade contracts signed between firms in OECD countries and PCPEs and LDCs in the period 1984-8, this view of countertrade is found to be consistent with the data.

Keywords: Contract Theory; Countertrade; Eastern Europe; Trade Policy (search for similar items in EconPapers)
JEL-codes: F13 F14 O57 (search for similar items in EconPapers)
Date: 1992-06
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