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A mutually beneficial relationship: relational contracts in developing countries

In: A Research Agenda for New Institutional Economics

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  • Rocco Macchiavello

Abstract

Imperfect contract enforcement is a pervasive feature of real-life commercial transactions. Consequently, trading parties rely on long-term relationships based on trust, reputation, and the promise of future rents, to guarantee contractual performance. Developing countries offer fertile ground for studying such relational contracts (RCs) since the market failures and organizational responses are starker, there are fertile opportunities to test theory isolating confounding factors, and a deeper understanding can help design better policies. This chapter reviews recent contributions that highlight the empirical content of RC models, different empirical strategies to test for the presence and quantify the value of RCs in observational data, the interaction between informal RCs and formal governance structures and evidence of how RCs alter market functioning. The chapter highlights promising avenues for further research in this exciting area, not only between firms, but within firms and public bureaucracies, between state and other actors, in informal community organizations, and so on.

Suggested Citation

  • Rocco Macchiavello, 2018. "A mutually beneficial relationship: relational contracts in developing countries," Chapters, in: Claude Ménard & Mary M. Shirley (ed.), A Research Agenda for New Institutional Economics, chapter 6, pages 53-61, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:17960_6
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    Cited by:

    1. Giacomo Calzolari & Leonardo Felli & Johannes Koenen & Giancarlo Spagnolo & Konrad O. Stahl, 2021. "Relational Contracts and Trust in a High-Tech Industry," CRC TR 224 Discussion Paper Series crctr224_2021_316, University of Bonn and University of Mannheim, Germany.

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