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Relational contracts and supplier turnover in the global economy

Defever, Fabrice; Fischer, Christian; Suedekum, Jens

Authors

Fabrice Defever

Christian Fischer

Jens Suedekum



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 cooperations 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. Using firm-product-level data of fresh Chinese exporters to the US, we obtain empirical evidence in line with the predictions of our theory.

Citation

Defever, F., Fischer, C., & Suedekum, J. (2016). Relational contracts and supplier turnover in the global economy. Journal of International Economics, 103, 147-165. https://doi.org/10.1016/j.jinteco.2016.09.002

Journal Article Type Article
Acceptance Date Sep 16, 2019
Online Publication Date Sep 22, 2019
Publication Date 2016-11
Deposit Date Jan 10, 2020
Publicly Available Date Mar 28, 2024
Journal Journal of International Economics
Print ISSN 0022-1996
Electronic ISSN 1873-0353
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 103
Pages 147-165
DOI https://doi.org/10.1016/j.jinteco.2016.09.002
Public URL https://nottingham-repository.worktribe.com/output/3701955
Publisher URL https://www.sciencedirect.com/science/article/pii/S0022199616301064
Additional Information This article is maintained by: Elsevier; Article Title: Relational contracts and supplier turnover in the global economy; Journal Title: Journal of International Economics; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jinteco.2016.09.002; Content Type: article; Copyright: © 2016 Elsevier B.V. All rights reserved.

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