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

Rocco Macchiavello | Zendy; Ameet Morjaria | Zendy

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

Author(s) -

Rocco Macchiavello,

Ameet Morjaria

Publication year - 2015

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20120141

Subject(s) - reputation , kenya , context (archaeology) , shock (circulatory) , value (mathematics) , enforcement , business , economics , political science , medicine , paleontology , machine learning , computer science , law , biology

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. We show that (i) due to lack of enforcement, the volume of trade is constrained by the value of the relationship; (ii) the value of the relationship increases with the age of the relationship; and (iii) 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

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