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Do we need handshakes to cooperate in buyer-supplier relationships?

Author

Listed:
  • José De Sousa

    (CES, University of Paris 1 and University of Rennes 2, Maison des Sciences Économiques)

  • Xavier Fairise

    (Centre d’Études des politiques Économiques de l’Université d’Evry (EPEE et TEPP - FR CNRS no 3126))

Abstract

Based 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.

Suggested Citation

  • José De Sousa & Xavier Fairise, 2009. "Do we need handshakes to cooperate in buyer-supplier relationships?," Documents de recherche 09-15, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:09-15
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Incomplete contracts; relationship-specific investments; cooperation;
    All these keywords.

    JEL classification:

    • 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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