Macchiavello, Rocco and Morjariay, Ameet (2009) The value of relational contracts : evidence from a supply shock to Kenyan flower exporters. In: NEUDC Conference 2009, Tufts University, USA, 7-8 Nov 2009 (Unpublished)

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Abstract

Contract enforcement between firms is an essential ingredient of economic development. Empirically, however, little is known about how enforcement is achieved in the absence of formal contracts and whether the associated inefficiencies are quantitatively relevant. This paper exploits transaction level data to provide a quantitative estimate of the value of relational contracts in the context of Kenyan flower exports, a setting in which formal contracts are not available and relational contracts coexist alongside a spot market. A lower bound estimate for the value of the relationship is derived from the incentive compatibility constraint of a stylized relational contract model. The value of the relational contract is at least 7% of the yearly turnover for the average relationship in the sample. Exploiting an exogenous shock to the cost function induced by an episode of ethnic violence, we find strong support for other assumptions and predictions of the model.

Item Type:	Conference Item (Paper)
Subjects:	H Social Sciences > HF Commerce
Divisions:	Faculty of Social Sciences > Economics
Official Date:	November 2009
Dates:	Date Event November 2009 Completion
Status:	Not Peer Reviewed
Publication Status:	Unpublished
Funder:	iiG research programme, UK Department for International Development (DFID), STICERD, ESRC
Conference Paper Type:	Paper
Title of Event:	NEUDC Conference 2009
Type of Event:	Conference
Location of Event:	Tufts University, USA
Date(s) of Event:	7-8 Nov 2009
Related URLs:	Organisation

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