Dynamics of Firm–Supplier Relationships in a Less Developed Economy: Evidence from African Manufacturing Firms
AbstractIn this paper, we study supplier–firm interactions to explain firms' outsourcing relationships. We show that in an imperfect information setup a firm learns about the quality of its suppliers through repeated interaction. As the firm determines the suppliers' quality with greater precision, it gives a greater proportion of its contracts to these “better” suppliers. We report evidence from African manufacturing firms that is consistent with our hypothesis: both frequency and volume of transactions increase with the length of a firm's relationship with its supplier. These effects are stronger in poor contracting environments.
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Bibliographic InfoPaper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number 04024.
Length: 11 pages
Date of creation: Feb 2004
Date of revision: Apr 2005
Publication status: Published in Southern Economic Journal, Vol. 72, No. 2
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
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