File2-page224 - McMillan & Woodruff (1999) 11.3 Social...

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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.

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