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File2-page223 - Banerjee Duo(2000 11.2 Social Networks...

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Banerjee & Duflo (2000) Social Networks 11.2 Banerjee & Duflo (2000) Reputation effects and the Limits of Contracting: A Study of the Indian Software Industry Software industry in India – contracting with Silicon Valley and elsewhere. A complex buyer specific product, i.e., the quality of the product is difficult to pin down and write into a contract that can be externally enforced. Reputational considerations heightened by fact that start-up costs are quite low. One just needs to lease office space with a few PCs. It is a highly com- petitive market and driven by export orders. Of course, given the distance between Silicon Valley and Bangalore, India (where most of the surveyed firms were based), monitoring is not easy. Indian courts – provide limited ability to enforce contracts. The main in- centive to do a high quality job is the prospect of repeat business. 125 software companies were surveyed for the paper – there is evidence of frequent renegotiation and significant overruns. There are two kinds of contracts that the surveyed software firms were
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