DP9531 The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports
|Author(s):||Rocco Macchiavello, Ameet Morjaria|
|Publication Date:||June 2013|
|Keyword(s):||exports, relational contracts, reputation|
|JEL(s):||C73, D23, L14, O12|
|Programme Areas:||Industrial Organization, International Trade and Regional Economics, Development Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9531|
This paper provides evidence on the importance of reputation, intended as beliefs buyers hold about seller's reliability, in the context of the Kenyan rose export sector. A model of reputation and relational contracting is developed and tested. We show that 1) the value of the relationship increases with the age of the relationship; 2) during an exogenous negative supply shock sellers prioritize relationships consistently with the predictions of the model; and 3) reliability at the time of the shock positively correlates with future survival and relationship value. Models exclusively focusing on enforcement or insurance considerations cannot account for the evidence.