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A theory of trust failure and vertical integration in industrial districts

  • Guido Merzoni

    ()

We model the interaction of independent firms within an industrial district as a repeated game of trust, where cooperative outcomes are not due to the cultural attitudes of the players, but the result of non-cooperative behaviour taking place in a stable organizational setting. When the outside option of changing partners is not too attractive, cooperation may arise also without ties between firms; when such attractiveness increases, cooperation may only be guaranteed by making the relationship more stable through a formal commitment, which may lead to a fullyfledged vertical integration. As the efficiency gains of changing partners becomes even larger, stable relationships are no longer optimal and the traditional model of industrial districts breaks down.

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Paper provided by Università Cattolica del Sacro Cuore, Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo (DISEIS) in its series DISEIS - Quaderni del Dipartimento di Economia internazionale, delle istituzioni e dello sviluppo with number dis1001.

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Date of creation: 2010
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Handle: RePEc:dis:wpaper:dis1001
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  1. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
  3. Samuel Bowles & Herbert Gintis, 2002. "Social Capital and Community Governance," Economic Journal, Royal Economic Society, vol. 112(483), pages 419-436, November.
  4. Parikshit Ghosh & Debraj Ray, 1995. "Cooperation in Community Interaction Without Information Flows," Boston University - Institute for Economic Development 64, Boston University, Institute for Economic Development.
  5. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  6. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
  7. Annen, Kurt, 2003. "Social capital, inclusive networks, and economic performance," Journal of Economic Behavior & Organization, Elsevier, vol. 50(4), pages 449-463, April.
  8. Ferdinando Colombo & Guido Merzoni, 2008. "For how long to tie your hands? Stable relationships in an unstable environment," Journal of Economics, Springer, vol. 95(2), pages 93-120, November.
  9. Colombo Ferdinando & Merzoni Guido, 2004. "Reputazione, flessibilità e durata ottima dei contratti," Economia politica, Società editrice il Mulino, issue 2, pages 233-268.
  10. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  11. Colombo, Ferdinando & Merzoni, Guido, 2006. "In praise of rigidity: The bright side of long-term contracts in repeated trust games," Journal of Economic Behavior & Organization, Elsevier, vol. 59(3), pages 349-373, March.
  12. Bennett Harrison, 2007. "Industrial Districts: Old Wine in New Bottles? (Volume 26, Number 5, 1992)," Regional Studies, Taylor & Francis Journals, vol. 41(sup1), pages S107-S121.
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