Economic Annals 2004 Volume 49, Issue 163, Pages: 31-50
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Private law enforcement in post-communist Southeastern Europe: An economic analysis of arbitration and execution

Schoenfelder Bruno

The very idea of private law enforcement is alien in Southeastern Europe and appears there to be perceived as somewhat extravagant. A thoroughgoing search for the reasons of an extremely limited scope of the private law enforcement is undertaken in the paper. Private law enforcement is seen as taking three basic forms: self-enforcement, enforcement through other agents and illegal means and through specialized agents and with reliance on legal means. Particularly extensive is the analysis of arbitrage, both domestic and international, and of the causes of its modest deployment. Several possible causes are examined to some detail: the lack of knowledge both generally and in the sense of the lacking awareness of the possibility to find recourse to arbitrage, the shortage of lowers and the inadequacy of legal advice, distrust in courts, the preference for secrecy combined with partly operating in the realm of the gray economy, the missing of appellate proceedings and the shortfall in execution. Various factors influence the market share of arbitrage in the mass of litigations through various mechanisms and to a significantly differentiated degree. The paper centers on the various, sufficiently numerous components of these mechanisms. The stress is placed upon the still subdued power of reputation capital due mostly to a highly unstable macroeconomic situation, weakly and recently institutionalized property relations and, as a consequence, short decision making horizon. A new law enforcement mechanism, based on notaries as specific private enforcers and emerging in Croatia, is surveyed with an account of its advantages and disadvantages.

Keywords: judiciary, arbitrage, legal device, market discipline, reputation capital