Institutional Conformity and Regional Credit Market Failures: Evidence from the Italian Industrial Districts

Luca Andriani
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Luca Andriani: Department of Management, Birkbeck College University of London

No 11, Management Working Papers from Birkbeck Department of Management

Abstract: Institutional conformity might help explain regional credit market failures in Italy in terms of insolvency rate. A credit relation is subject to a certain degree of uncertainty about the credible commitment of the parties to fulfil the contractual obligations. We argue that conformity to informal institutions of reciprocal cooperation and trust can reduce this degree of uncertainty and, hence, contract breaches. We support our argument by conducting an empirical investigation where the regional density of industrial districts is used as indicator of institutional conformity. We find lower insolvency rate in regions with higher institutional conformity. Additionally, we find higher conformity to informal institutions in regions where the punishment system reacts quicker to non-compliant behaviours, suggesting a complementary relationship between conformity to informal institutions and lower cost of punishment. One of the advantages of this indicator consists in the possibility of addressing “Ostrom-type” policy recommendations to reduce regional credit market failures.

Pages: 23 pages
Date: 2015-11, Revised 2015-11
New Economics Papers: this item is included in nep-cse and nep-geo
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Citations: View citations in EconPapers (3)

Published on Birkbeck Deparment of Management web site, November 2015, pages 1-23

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