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  4. September 2015
  5. The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports

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

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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. 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. (JEL D86, F14, L14, O13, O19, Q17)

Citation

Macchiavello, Rocco, and Ameet Morjaria. 2015. "The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports." American Economic Review, 105 (9): 2911-45. DOI: 10.1257/aer.20120141

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JEL Classification

  • D86 Economics of Contract: Theory
  • F14 Empirical Studies of Trade
  • L14 Transactional Relationships; Contracts and Reputation; Networks
  • O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
  • O19 International Linkages to Development; Role of International Organizations
  • Q17 Agriculture in International Trade