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The value of relationships: evidence from a supply shock to Kenyan rose exports

Macchiavello, Rocco and Morjaria, Ameet (2015) The value of relationships: evidence from a supply shock to Kenyan rose exports. American Economic Review, 105 (9). pp. 2911-2945. ISSN 0002-8282

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Identification Number: 10.1257/aer.20120141

Abstract

This paper provides evidence on the importance of reputation in the context of the Kenyan rose export sector. A model of reputation and relational contracting is developed and tested. A seller's reputation is defined by buyer's beliefs about seller's reliability. We show that (i) due to lack of enforcement, the volume of trade is constrained by the value of the relationship; (ii) the value of the relationship increases with the age of the relationship; and (iii) during an exogenous negative supply shock deliveries are an inverted-U shaped function of relationship's age. Models exclusively focusing on enforcement or insurance considerations cannot account for the evidence.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/aer
Additional Information: © 2015 American Economic Association
Divisions: Management
Subjects: H Social Sciences > HF Commerce
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory
F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships; Contracts and Reputation; Networks
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture; Natural Resources; Energy; Environment; Other Primary Products
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O19 - International Linkages to Development; Role of International Organizations
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q17 - Agriculture in International Trade
Sets: Departments > Management
Date Deposited: 01 Nov 2016 16:32
Last Modified: 20 Jun 2019 02:08
URI: http://eprints.lse.ac.uk/id/eprint/68207

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