Do we need handshakes to cooperate in buyer-supplier relationships?
AbstractBased on differences in production costs, McLaren (1999) [“Supplier relations and the market context: a theory of handshakes”, Journal of International Economics 48, 121-138] demonstrates that informal ‘handshake’ arrangements foster cooperation in buyer-supplier relationships, compared to formal contractual arrangements. This may explain international differences in procurement practices, such as American vs. Japanese. However, McLaren’s result holds under particular assumptions about production costs. Allowing for more traditional assumptions in procurement practices, such as relationship-specific investment costs and renegotiable contracts, we find in contrast that formal contractual arrangements may induce more cooperation than handshakes.
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Bibliographic InfoPaper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 09-15.
Length: 17 pages
Date of creation: 2009
Date of revision:
Incomplete contracts; relationship-specific investments; cooperation;
Other versions of this item:
- José De Sousa & Xavier Fairise, 2010. "Do we need handshakes to cooperate in buyer-supplier relationships?," Working Papers SMART - LERECO 201013, INRA UMR SMART.
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
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