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Culture, Law, and Contractual Relations

Author

Listed:
  • Alireza Naghavi
  • Giuseppe Pignataro
  • Katja Zajc Kejzar

Abstract

This paper explores the role of culture in firm organization and its interplay with legal enforcement in determining the organization and longevity of buyer-supplier relationships. We provide theory and evidence, showing how individualism and legal enforcement interact and affect firm behavior in industries with different technological characteristics. A higher level of individualism in source countries encourages integration (outsourcing) in high-(low-) technology industries. Legal institutions could increase the duration of contractual relationships by encouraging customization effort by individualistic suppliers with a sense of pride, while preventing infringement of sensitive technologies by those less concerned about self-achievement. Enforcement could however adversely affect the continuity of trade relations in more individualistic societies.

Suggested Citation

  • Alireza Naghavi & Giuseppe Pignataro & Katja Zajc Kejzar, 2023. "Culture, Law, and Contractual Relations," Development Working Papers 487, Centro Studi Luca d'Agliano, University of Milano, revised 16 Jan 2024.
    • Handle: RePEc:csl:devewp:487
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    More about this item

    Keywords

    Individualism; Supplier relation longevity; Legal institutions; Firm organization; Technology; Infringement; Knowledge absorption; Contract enforcement; Customization; Pride;
    All these keywords.

    JEL classification:

    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • Z10 - Other Special Topics - - Cultural Economics - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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