Defever, Fabrice, Fischer, Christian and Suedekum, Jens (2015) Relational contracts and supplier turnover in the global economy. CEP Discussion Paper (1375). London School of Economics and Political Science. Centre for Economic Performance, London, UK.
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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 cooperation’s 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.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://cep.lse.ac.uk/ |
| Additional Information: | © 2015 The Authors |
| Divisions: | Centre for Economic Performance |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor |
| JEL classification: | D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L23 - Organization of Production |
| Date Deposited: | 14 Jan 2016 13:47 |
| Last Modified: | 15 Sep 2023 23:37 |
| Funders: | Economic and Social Research Council |
| URI: | http://eprints.lse.ac.uk/id/eprint/64978 |
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