The Value of Relationships: Evidence from a Supply Shock to Kenyan Flower Exporters, American Economic Review
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.
Macchiavello Rocco, Ameet Morjaria
Rocco, Macchiavello, and Ameet Morjaria. 2015. The Value of Relationships: Evidence from a Supply Shock to Kenyan Flower Exporters. American Economic Review. 105(9): 2911-45.