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

  • Macchiavello, Rocco

    (Department of Economics, University of Warwick)

  • Morjaria, Ameet

    (World Bank)

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 focussing on enforcement or insurance considerations cannot account for the evidence. JEL classification: C73 ; D23 ; L14 ; O12

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2013/twerp_1032_macchiavello.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 1032.

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Date of creation: 2013
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Handle: RePEc:wrk:warwec:1032
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  1. Marcel Fafchamps, 2004. "Market Institutions in Sub-Saharan Africa: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262062364, June.
  2. 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.
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  9. Gil, Ricard & Marion, Justin, 2009. "The Role of Repeated Interactions, Self-Enforcing Agreements and Relational [Sub]Contracting: Evidence from California Highway Procurement Auctions," University of California Transportation Center, Working Papers qt66z0w84p, University of California Transportation Center.
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  16. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
  17. Fafchamps, Marcel, 2000. "Ethnicity and credit in African manufacturing," Journal of Development Economics, Elsevier, vol. 61(1), pages 205-235, February.
  18. 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.
  19. Ksoll, Christopher & Macchiavello, Rocco & Morjaria, Ameet, 2010. "The Effect of Ethnic Violence on an Export-Oriented Industry," CEPR Discussion Papers 8074, C.E.P.R. Discussion Papers.
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