Competition and relational contracts in the Rwanda coffee Chain

Rocco Macchiavello and Ameet Morjaria

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: How does competition affect market outcomes when formal contracts are not enforceable and parties’ resort to relational contracts? Difficulties with measuring relational contracts and dealing with the endogeneity of competition have frustrated attempts to answer this question. We make progress by studying relational contracts between upstream farmers and downstream mills in Rwanda’s coffee industry. First, we identify salient dimensions of their relational contracts and measure them through an original survey of mills and farmers. Second, we take advantage of an engineering model for the optimal placement of mills to construct an instrument that isolates geographically determined variation in competition. Conditional on the suitability for mills’ placement within the catchment area, we find that mills surrounded by more suitable areas: (i) face more competition from other mills; (ii) use fewer relational contracts with farmers; and (iii) exhibit worse performance. An additional competing mill also (iv) reduces the aggregate quantity of coffee supplied to mills by farmers and (v) makes farmers worse off. Competition hampers relational contracts directly by increasing farmers’ temptation to default on the relational contract and indirectly by reducing mill’s profits.

JEL-codes: J01 L81 R14 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2020-12-28
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Quarterly Journal of Economics, 28, December, 2020, 136(2), pp. 1089–1143. ISSN: 0033-5533

Downloads: (external link)
http://eprints.lse.ac.uk/107514/ Open access version. (application/pdf)

Related works:
Journal Article: Competition and Relational Contracts in the Rwanda Coffee Chain* (2021)
Working Paper: Competition and Relational Contracts in the Rwanda Coffee Chain (2019)
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:ehl:lserod:107514

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().