Time is on my side: relational contracts and aggregate welfare

Bohdan Kukharskyy and Michael Pflüger

Oxford Economic Papers, 2019, vol. 71, issue 3, 709-732

Abstract: This paper develops a simple general equilibrium model which establishes a link between the patience of economic agents and the well-being of nations. We show that firms in long-term oriented countries can mitigate hold-up inefficiencies by engaging with their suppliers in relational contracting—informal agreements sustained by the value of future relationships. Our model predicts that countries with a higher level of patience will exhibit greater economic well-being and higher total factor productivity. We provide empirical evidence in line with the predictions of our theory.

JEL-codes: D23 L14 L22 L23 O10 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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