A new three-year research project commences at HETFA Institute in October 2014. The project is led by Karoly Mike, who has received a postdoctoral scholarship from the Hungarian Scientific Research Fund.

The legal system plays a crucial role in any modern economy. An important aspect of this role is that it supports business relationship between enterprises by safeguarding their mutual contractual promises. In the absence of enforcement by courts, firms can rely on non-legal safeguards, such as personal ties, social norms or their partner’s concerns with good reputation. However, these safeguards tend to limit cooperation to rather narrow social spheres and their exclusive use hinders the development of a fully-fledged entrepreneurial economy. At the moment, we know little about how and to what extent Hungarian firms rely on the enforcement of their business contracts by courts. The research explores the types of business relationships, products and markets for which courts are especially important in safeguarding contracts. It set up a diagnosis about how far Hungary has travelled on the road towards an economic and legal system in which the enforcement of contracts by courts safely protects business-making between two strangers. It also tries to identify the factors that support or block such development. For these purposes, the research project analyses data from a survey conducted among 300 Hungarian small and medium enterprises as well as a detailed case study about the contracting practices of an industry.