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

Author

Listed:
  • José De Sousa
  • Xavier Fairise

Abstract

Does formal contracting foster cooperation in a buyer-supplier relationship? In line with the literature, we find that a renegotiable contract with relationship-specific joint investments does not make it possible to reach the first-best. However, we show that a renegotiable contract may induce more cooperation than an informal arrangement. This result may help to understand how cooperation emerges in Japanese procurement practices, which typically involve relationship-specific joint investments and renegotiable contracts.

Suggested Citation

  • José De Sousa & Xavier Fairise, 2010. "Do we need handshakes to cooperate in buyer-supplier relationships?," Working Papers SMART 10-13, INRAE UMR SMART.
    • Handle: RePEc:rae:wpaper:201013
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    File URL: http://www6.rennes.inra.fr/smart/Media/Working-papers/WP10-13
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    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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