Relational Contracts and Supplier Turnover in the Global Economy
Fabrice Defever,
Christian Fischer and
Jens Suedekum
CEP Discussion Papers from Centre for Economic Performance, LSE
Abstract:
Headquarters and their specialized component suppliers have a vital interest in establishing long-term collaborations. When formal contracts are not enforceable, such efficiency enhancing cooperations can be established via informal agreements, but relational contracts have been largely ignored in the literature on the international organization of value chains. In this paper, we develop a dynamic property rights model of global sourcing. A domestic headquarter collaborates with a foreign input supplier and makes two decisions in every period: i) whether to engage in a costly search for a better partner, and ii) whether to make a non-binding offer to overcome hold-up problems. Our key result is that the possibility to switch partners crucially affects the contractual nature of buyer-supplier relationships. In particular, some patient firms do not immediately establish a relational contract, but only when they decide to stop searching and thus launch a long-term collaboration with their supplier. From our model, we develop an instrumental variable estimation strategy that we apply using transaction-level data of fresh Chinese exporters to the US. We obtain empirical evidence in line with the theoretical prediction of a positive causal effect of match durations on relational contracting.
Keywords: Firm organization; input sourcing; relational contracts; supplier search; processing trade; China (search for similar items in EconPapers)
JEL-codes: D23 F23 L23 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-com and nep-cta
References: Add references at CitEc
Citations: View citations in EconPapers (5)
Downloads: (external link)
https://cep.lse.ac.uk/pubs/download/dp1375.pdf (application/pdf)
Related works:
Journal Article: Relational contracts and supplier turnover in the global economy (2016)
Working Paper: Relational Contracts and Supplier Turnover in the Global Economy (2016)
Working Paper: Relational Contracts and Supplier Turnover in the Global Economy (2015)
Working Paper: Relational contracts and supplier turnover in the global economy (2015)
Working Paper: Relational contracts and supplier turnover in the global economy (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1375
Access Statistics for this paper
More papers in CEP Discussion Papers from Centre for Economic Performance, LSE
Bibliographic data for series maintained by (cep.info@lse.ac.uk).