The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports

This paper develops and tests a model of reputation and relational contracting

From:
Department for International Development
Published
1 January 2015
Country:
Kenya
Document Type:
Journal Article
Theme:
Economic Growth
Authors:
Macchiavello, R., Morjaria, A.

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. The authors show that:

  1. due to lack of enforcement, the volume of trade is constrained by the value of the relationship

  2. the value of the relationship increases with the age of the relationship;

  3. 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.

Citation

Macchiavello, R.; Morjaria, A. The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports. American Economic Review (2015) 105 (9) 2911-2945. [DOI: 10.1257/aer.20120141]

The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports

Published 1 January 2015
Contents