Relational contracts and development

Macchiavello, Rocco ORCID: 0009-0007-5465-3153 (2022) Relational contracts and development. Annual Review of Economics, 14. 337 - 362. ISSN 1941-1383

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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.

Item Type:	Article
Official URL:	https://www.annualreviews.org/journal/economics
Additional Information:	© 2022 Annual Reviews Inc.
Divisions:	Management
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
JEL classification:	L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships; Contracts and Reputation; Networks L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L23 - Organization of Production O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
Date Deposited:	22 Sep 2022 15:09
Last Modified:	12 Dec 2024 03:17
URI:	http://eprints.lse.ac.uk/id/eprint/116662

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