IDEAS home Printed from https://ideas.repec.org/p/cam/camjip/2101.html
   My bibliography  Save this paper

Relational Contracts and Trust in a High-Tech Industry

Author

Listed:
  • Calzolari, G.
  • Felli, L.
  • Koenen, J.
  • Spagnolo, G.
  • Stahl, K. O.

Abstract

We study how informal buyer-supplier relationships in the German automotive industry affect procurement. Using unique data from a survey focusing on these, we show that more trust, the belief that the trading partner acts to maintain the mutual relationship, is associated with both higher quality of the automotive parts and more competition among suppliers. Yet both effects hold only for parts involving unsophisticated technology, not when technology is sophisticated. We rationalize these findings within a relational contracting model that critically focuses on changes in the bargaining power, due to differences in the costs of switching suppliers.

Suggested Citation

  • Calzolari, G. & Felli, L. & Koenen, J. & Spagnolo, G. & Stahl, K. O., 2021. "Relational Contracts and Trust in a High-Tech Industry," Janeway Institute Working Papers 2101, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camjip:2101
    Note: lf454
    as

    Download full text from publisher

    File URL: https://www.janeway.econ.cam.ac.uk/working-paper-pdfs/jiwp2101.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-785, July.
    2. Rogerson, William P, 1989. "Profit Regulation of Defense Contractors and Prizes for Innovation," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1284-1305, December.
    3. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships and Informal Credit in Vietnam," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1285-1320.
    4. Raghuram G. Rajan & Luigi Zingales, 1998. "Power in a Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 387-432.
    5. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
    6. Isaiah Andrews & Daniel Barron, 2016. "The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents," American Economic Review, American Economic Association, vol. 106(9), pages 2742-2759, September.
    7. De Chiara, Alessandro, 2020. "Precontractual investment and modes of procurement," European Economic Review, Elsevier, vol. 124(C).
    8. Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall.
    9. W. Bentley MacLeod, 2007. "Reputations, Relationships, and Contract Enforcement," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 595-628, September.
    10. Steven Blader & Claudine Gartenberg & Rebecca Henderson & Andrea Prat, 2015. "The Real Effects of Relational Contracts," American Economic Review, American Economic Association, vol. 105(5), pages 452-456, May.
    11. Claude Ménard & Mary M. Shirley, 2018. "A Research Agenda for New Institutional Economics," Post-Print hal-02046587, HAL.
    12. Nicholas Bloom & Renata Lemos & Raffaella Sadun & Daniela Scur & John Van Reenen, 2014. "The New Empirical Economics of Management," NBER Working Papers 20102, National Bureau of Economic Research, Inc.
    13. Leonardo Felli & Kevin Roberts, 2016. "Does Competition Solve the Hold-up Problem?," Economica, London School of Economics and Political Science, vol. 83(329), pages 172-200, January.
    14. Yu, Haisheng & Zeng, Amy Z. & Zhao, Lindu, 2009. "Single or dual sourcing: decision-making in the presence of supply chain disruption risks," Omega, Elsevier, vol. 37(4), pages 788-800, August.
    15. Pol Antràs & C. Fritz Foley, 2015. "Poultry in Motion: A Study of International Trade Finance Practices," Journal of Political Economy, University of Chicago Press, vol. 123(4), pages 853-901.
    16. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 515-539.
    17. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    18. Spagnolo, Giancarlo & Calzolari, Giacomo, 2009. "Relational Contracts and Competitive Screening," CEPR Discussion Papers 7434, C.E.P.R. Discussion Papers.
    19. Asanuma, Banri, 1989. "Manufacturer-supplier relationships in Japan and the concept of relation-specific skill," Journal of the Japanese and International Economies, Elsevier, vol. 3(1), pages 1-30, March.
    20. GIL, Ricard & KIM, Myongjim & ZANARONE, Giorgio, 2016. "The Value of Relational Adaptation in Outsourcing: Evidence from the 2008 shock to the US Airline Industry," Discussion paper series HIAS-E-32, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    21. Steven Blader & Claudine Gartenberg & Andrea Prat, 2020. "The Contingent Effect of Management Practices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(2), pages 721-749.
    22. Nicholas Bloom & Renata Lemos & Raffaella Sadun & Daniela Scur & John Reenen, 2014. "Jeea-Fbbva Lecture 2013: The New Empirical Economics Of Management," Journal of the European Economic Association, European Economic Association, vol. 12(4), pages 835-876, August.
    23. Rocco Macchiavello & Ameet Morjaria, 2015. "Competition and Relational Contracts: Evidence from Rwanda's Coffee Mills," 2015 Meeting Papers 431, Society for Economic Dynamics.
    24. Taylor, Curtis R & Wiggins, Steven N, 1997. "Competition or Compensation: Supplier Incentives under the American and Japanese Subcontracting Systems," American Economic Review, American Economic Association, vol. 87(4), pages 598-618, September.
    25. Koppel, Oliver & Puls, Thomas & Röben, Enno, 2018. "Die Patentleistung der deutschen KFZ-Unternehmen: Eine Analyse der Patentanmeldungen beim deutschen Patent- und Markenamt unter Berücksichtigung von branchen- und technologiespezifischen Schwerpunkten," IW-Reports 34/2018, Institut der deutschen Wirtschaft (IW) / German Economic Institute.
    26. Williamson, Oliver E, 1993. "Calculativeness, Trust, and Economic Organization," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 453-486, April.
    27. Daniel Barron & Robert Gibbons & Ricard Gil & Kevin J.Murphy, 2020. "Relational Adaptation Under Reel Authority," Management Science, INFORMS, vol. 66(5), pages 1868-1889, May.
    28. MacLeod, W Bentley & Malcomson, James M, 1998. "Motivation and Markets," American Economic Review, American Economic Association, vol. 88(3), pages 388-411, June.
    29. Yimin Wang & Wendell Gilland & Brian Tomlin, 2010. "Mitigating Supply Risk: Dual Sourcing or Process Improvement?," Manufacturing & Service Operations Management, INFORMS, vol. 12(3), pages 489-510, September.
    30. Rocco Macchiavello & Ameet Morjaria, 0. "Competition and Relational Contracts in the Rwanda Coffee Chain," The Quarterly Journal of Economics, Oxford University Press, vol. 136(2), pages 1089-1143.
    31. Claude Ménard & Mary M. Shirley (ed.), 2018. "A Research Agenda for New Institutional Economics," Books, Edward Elgar Publishing, number 17960.
    32. Susan Helper & Rebecca Henderson, 2014. "Management Practices, Relational Contracts, and the Decline of General Motors," Journal of Economic Perspectives, American Economic Association, vol. 28(1), pages 49-72, Winter.
    33. Ricard Gil & Justin Marion, 2013. "Self-Enforcing Agreements and Relational Contracting: Evidence from California Highway Procurement," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(2), pages 239-277, April.
    34. Bodoh-Creed, Aaron L., 2019. "Endogenous institutional selection, building trust, and economic growth," Games and Economic Behavior, Elsevier, vol. 114(C), pages 169-176.
    35. Melis Kartal, 2018. "Honest Equilibria in Reputation Games: The Role of Time Preferences," American Economic Journal: Microeconomics, American Economic Association, vol. 10(1), pages 278-314, February.
    36. Rocco Macchiavello, 2018. "A mutually beneficial relationship: relational contracts in developing countries," Chapters, in: Claude Ménard & Mary M. Shirley (ed.), A Research Agenda for New Institutional Economics, chapter 6, pages 53-61, Edward Elgar Publishing.
    37. Simon Board, 2011. "Relational Contracts and the Value of Loyalty," American Economic Review, American Economic Association, vol. 101(7), pages 3349-3367, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anderlini, L. & Felli, L. & Piccone, M., 2022. "The Emergence of Enforcement," Cambridge Working Papers in Economics 2250, Faculty of Economics, University of Cambridge.
    2. Macchiavello, Rocco & Morjaria, Ameet, 2022. "Empirical approaches to trust and relational contracts," International Journal of Industrial Organization, Elsevier, vol. 84(C).
    3. repec:ags:aaea22:335732 is not listed on IDEAS
    4. Keefer, Philip & Vlaicu, Razvan, 2024. "Employee trust and performance constraints in public sector organizations," European Journal of Political Economy, Elsevier, vol. 81(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giacomo Calzolari & Leonardo Felli & Johannes Koenen & Giancarlo Spagnolo & Konrad O. Stahl, 2019. "Trust, investment and competition: theory and evidence from German car manufacturers," CESifo Working Paper Series 7680, CESifo.
    2. Spagnolo, Giancarlo & Calzolari, Giacomo & Felli, Leonardo & Koenen, Johannes & Stahl, Konrad, 2017. "Relational Contracts, Competition and Innovation: Theory and Evidence from German Car Manufacturers," CEPR Discussion Papers 12267, C.E.P.R. Discussion Papers.
    3. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    4. Giacomo Calzolari & Leonardo Felli & Johannes Koenen & Giancarlo Spagnolo & Konrad Stahl, 2024. "Trust in Vertical Relations," CRC TR 224 Discussion Paper Series crctr224_2024_530, University of Bonn and University of Mannheim, Germany.
    5. Nicholas Argyres & Janet Bercovitz & Giorgio Zanarone, 2020. "The role of relationship scope in sustaining relational contracts in interfirm networks," Strategic Management Journal, Wiley Blackwell, vol. 41(2), pages 222-245, February.
    6. W. Bentley MacLeod & James M. Malcomson, 2023. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment: Thirty Years On," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 179(3-4), pages 470-499.
    7. Ricard Gil & Myongjin Kim & Giorgio Zanarone, 2022. "Relationships Under Stress: Relational Outsourcing in the U.S. Airline Industry After the 2008 Financial Crisis," Management Science, INFORMS, vol. 68(2), pages 1256-1277, February.
    8. Giacomo Calzolari & Leonardo Felli & Johannes Koenen & Giancarlo Spagnolo & Konrad O. Stahl, 2015. "Trust, Competition and Innovation: Theory and Evidence from German Car Manufacturers," CESifo Working Paper Series 5229, CESifo.
    9. Gian Luigi Albano & Berardino Cesi & Alberto Iozzi, 2023. "Teaching an old dog a new trick: Reserve price and unverifiable quality in repeated procurement," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(2), pages 377-399, April.
    10. De Chiara, Alessandro, 2020. "Precontractual investment and modes of procurement," European Economic Review, Elsevier, vol. 124(C).
    11. Joel Watson, 2021. "Theoretical Foundations of Relational Incentive Contracts," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 631-659, August.
    12. Ricard Gil & Myongjin Kim & Giorgio Zanarone, 2019. "Relational Contracting in Developed Economies: Lessons from Slot Exchanges in the us Airline Industry," The Japanese Economic Review, Springer, vol. 70(3), pages 411-421, September.
    13. Ricard Gil & Giorgio Zanarone, 2018. "On the determinants and consequences of informal contracting," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 726-741, October.
    14. Noel, Michael D. & Qiang, Hongjie, 2022. "Open price contracts, locked-in buyers, and opportunism," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    15. Chongwoo Choe & Shingo Ishiguro, 2022. "Relational Contracts and Hierarchy," Monash Economics Working Papers 2022-08, Monash University, Department of Economics.
    16. Jean Guillaume Forand & Jan Zapal, 2017. "The Demand and Supply of Favours in Dynamic Relationships," Working Papers 1705, University of Waterloo, Department of Economics, revised Sep 2017.
    17. Hideshi Itoh & Hodaka Morita, 2015. "Formal Contracts, Relational Contracts, and the Threat-Point Effect," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 318-346, August.
    18. Leonardo Felli & Kevin Roberts, 2016. "Does Competition Solve the Hold-up Problem?," Economica, London School of Economics and Political Science, vol. 83(329), pages 172-200, January.
    19. Stahl, Konrad & Felli, Leonardo & Koenen, Johannes, 2011. "Competition and Trust: Evidence from German Car Manufacturers," CEPR Discussion Papers 8265, C.E.P.R. Discussion Papers.
    20. Janne Tukiainen & Sebastian Blesse & Albrecht Bohne & Leonardo M. Giuffrida & Jan Jäässkeläinen & Ari Luukinen & Antti Sieppi, 2021. "What Are the Priorities of Bureaucrats? Evidence from Conjoint Experiments with Procurement Officials," EconPol Working Paper 63, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

    More about this item

    Keywords

    Relational Contracts; Hold-up; Buyer-Supplier Contracts; Bargaining Power;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cam:camjip:2101. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jake Dyer (email available below). General contact details of provider: https://janeway.econ.cam.ac.uk/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.