Relational contracts and the economic well-being of nations

Arbeitspapier

Informal long-term relationships and mutual confidence play a crucial role in modern economies in at least two dimensions. First, the performance of firms is strongly affected by their capacity to solve organizational questions effectively and this capacity is apparently strongly related to their ability to maintain informal long-term relationships. Second, countries that are better at maintaining unwritten agreements and where interactions are more strongly guided by a sense of trust fare better in terms of economic welfare than others. This paper provides a simple general equilibrium model which reconciles these two findings: we offer a micro-founded explanation of how the trust that prevails in an economy gets transmitted into higher economic well-being and we thereby highlight the role of managers with low time preference. Our analysis builds on the model of Antràs and Helpman (2004) and a formalization of the notion of relational contracting developed in Baker, Gibbons and Murphy (2002).

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 5394

Classification and Topics

• Classification: Wirtschaft ; Organizational Behavior; Transaction Costs; Property Rights ; Empirical Studies of Trade ; Transactional Relationships; Contracts and Reputation; Networks ; Firm Organization and Market Structure
• Subject: aggregate welfare ; theory of the firm ; relational contracting ; firm heterogeneity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kukharskyy, Bohdan ; Pflüger, Michael P.
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/51693