Relational Contracts and Supplier Turnover in the Global Economy

Christian Fischer, Jens Suedekum and Fabrice Defever

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

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.

JEL-codes: D23 F23 L23 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (26)

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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 (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)
Working Paper: Relational contracts and supplier turnover in the global economy (2015)
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