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Unformatted text preview: McMillan & Woodruff (1999) 11.3 Social Networks McMillan & Woodruff (1999) Interﬁrm Relationships and Informal Credit in Vietnam
In Vietnam, the laws of contract are incomplete. Informal relationships
often substitute for the courts in allowing deals to be made.
Clientelistic relationships: studied by sociologists, anthropologists and economic historians. Very little econometric analysis on this thus far.
The paper survey private ﬁrms in Vietnam and gets primary data on ﬁrm’s
relationships with its customers and suppliers. They measure a ﬁrm’s trust
by the amount of trade credit it grants its customers. Main ﬁndings: Trade credit is offered when
(a) It is difﬁcult for the customer to ﬁnd an alternative supplier.
(b) The supplier has information about the customers reliability either
through prior investigation or through dealing with it.
(c) The supplier belongs to a network of similar ﬁrms. The business network
provides both information about customers reliability as well as the means
of sanctioning customers that renege on deals. Social networks based on family ties also support relational contracting.
Though, the evidence for their efﬁcacy is weaker than for business networks. In Vietnam, private ﬁrms do not yet have a formal legal system to
fall back on.
Dependent variable: fraction of payment made after delivery of the goods.
Independent variables: customer’s ability to ﬁnd alternative trading partners, information gathered by suppliers about the partner and network
relationships. Think about all this in the context of repeated game theory. Hypotheses
(1) customers lacking alternative suppliers will receive more trade credit.
Development Economics, LSE Summer School 2007 221 ...
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This note was uploaded on 12/29/2011 for the course ECO 307 taught by Professor Dublin during the Spring '10 term at SUNY Stony Brook.
- Spring '10