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

  • Macchiavello, Rocco
  • Morjaria, Ameet

This paper provides evidence on the importance of reputation, intended as beliefs buyers hold about seller's reliability, in the context of the Kenyan rose export sector. A model of reputation and relational contracting is developed and tested. We show that 1) the value of the relationship increases with the age of the relationship; 2) during an exogenous negative supply shock sellers prioritize relationships consistently with the predictions of the model; and 3) reliability at the time of the shock positively correlates with future survival and relationship value. Models exclusively focusing on enforcement or insurance considerations cannot account for the evidence.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9531.

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Date of creation: Jun 2013
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Handle: RePEc:cpr:ceprdp:9531
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  1. Fafchamps, Marcel, 2000. "Ethnicity and credit in African manufacturing," Journal of Development Economics, Elsevier, vol. 61(1), pages 205-235, February.
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  11. Marcel Fafchamps, 2006. "Spontaneous Markets, Networks, and Social Capital: Lessons from Africa," Economics Series Working Papers GPRG-WPS-058, University of Oxford, Department of Economics.
  12. Parikshit Ghosh & Debraj Ray, 1996. "Cooperation in Community Interaction Without Information Flows," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 491-519.
  13. Jean-Jacques Laffont & Jean Tirole, 1985. "The Dynamics of Incentive Contracts," Working papers 397, Massachusetts Institute of Technology (MIT), Department of Economics.
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  16. Jonathan Thomas & Tim Worrall, 1988. "Self-Enforcing Wage Contracts," Review of Economic Studies, Oxford University Press, vol. 55(4), pages 541-554.
  17. Macchiavello, Rocco, 2010. "Development Uncorked: Reputation Acquisition in the New Market for Chilean Wines in the UK," CEPR Discussion Papers 7698, C.E.P.R. Discussion Papers.
  18. Marina Halac, 2012. "Relational Contracts and the Value of Relationships," American Economic Review, American Economic Association, vol. 102(2), pages 750-79, April.
  19. Marcel Fafchamps, 2004. "Market Institutions in Sub-Saharan Africa: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262062364, December.
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