Trust and Search in Vietnam's Emerging Private Sector

Stephan Haggard, John McMillan and Christopher Woodruff

No 1506, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper investigates how start-up firms in Vietnam operate in the face of two significant market frictions: a poorly developed legal system and inadequate market information. We argue that these two market frictions actually offset each other. Poor market information and the consequent difficulty of locating trading partners can help make self-enforcing contracts workable. Firms that have nowhere else to go will refrain from breaking their agreements. If it is difficult to locate alternative trading partners, firms will invest in maintaining their existing relationships. Our empirical analysis is consistent with this hypothesis.

Keywords: Contracting; Search; Transition; Vietnam (search for similar items in EconPapers)
JEL-codes: O12 O17 P21 (search for similar items in EconPapers)
Date: 1996-11
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Citations: View citations in EconPapers (7)

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