Relational Contracts and Development

Rocco Macchiavello

Annual Review of Economics, 2022, vol. 14, issue 1, 337-362

Abstract: This article reviews an emerging body of evidence on relational contracts, defined as informal arrangements sustained by the value of future interactions. We focus on developing and international markets, which are often characterized as contexts with weak formal contract enforcement. We introduce relational contracting between firms as a governance form alternative to both firms and markets. We then review evidence on the prevalence of long-term relationships between firms and discuss why this governance form might be particularly common in developing countries. After introducing a simple framework, we discuss the measurement of relational contracting between firms. We review an approach that takes dynamic incentive compatibility constraints to the data to quantify the value of future interactions and illustrate how different types of shocks can be used to uncover the inner functioning of relational contracting. We also review structural models and conclude with policy implications and promising avenues for future research.

Keywords: governance forms; relational contracts; trust; organizational economics; development economics (search for similar items in EconPapers)
JEL-codes: L1 L14 L2 L22 L23 O12 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://doi.org/10.1146/annurev-economics-051420-110722
Full text downloads are only available to subscribers. Visit the abstract page for more information.

Related works:
Working Paper: Relational contracts and development (2022)
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:anr:reveco:v:14:y:2022:p:337-362

Ordering information: This journal article can be ordered from
http://www.annualreviews.org/action/ecommerce

DOI: 10.1146/annurev-economics-051420-110722

Access Statistics for this article

More articles in Annual Review of Economics from Annual Reviews Annual Reviews 4139 El Camino Way Palo Alto, CA 94306, USA.
Bibliographic data for series maintained by http://www.annualreviews.org ().