We study differences in markups earned by Bangladeshi garment exporters across buyers with different sourcing strategies and make three contributions. First, we distinguish buyers with a relational versus a spot sourcing strategy and show that a buyer’s sourcing strategy is correlated across products and origins. Buyer fixed effects explain most of the variation in sourcing strategies, suggesting that these depend on organizational capabilities. Second, we use novel data that match quantities and prices of the two main variable inputs in the production of garments (fabric and labor on sewing lines) to specific export orders. We derive conditions under which these data allow measurement of within exporter-product-time differences in markups across orders produced for different buyers. Third, we show that exporters earn higher markups on otherwise identical orders produced for relational, as opposed to spot, buyers. A sourcing model with imperfect contract enforcement, idiosyncratic shocks to exporters, and buyers that adopt different sourcing strategies trading off higher prices and reliable supply rationalizes this and other observed facts in the industry. We discuss alternative explanations and policy implications.

How does competition affect market outcomes when formal contracts are not enforceable and parties resort to relational contracts? Difficulties with measuring relational contracts and dealing with the endogeneity of competition have frustrated attempts to answer this question. We make progress by studying relational contracts between upstream farmers and downstream mills in Rwanda’s coffee industry. First, we identify salient dimensions of their relational contracts and measure them through an original survey of mills and farmers. Second, we take advantage of an engineering model for the optimal placement of mills to construct an instrument that isolates geographically determined variation in competition. Conditional on the suitability for mills’ placement in the catchment area, we find that mills surrounded by more suitable areas (i) face more competition from other mills, (ii) use fewer relational contracts with farmers, and (iii) exhibit worse performance. An additional competing mill also (iv) reduces the aggregate quantity of coffee supplied to mills by farmers and (v) makes farmers worse off. Competition hampers relational contracts directly by increasing farmers’ temptation to default on the relational contract and indirectly by reducing mills’ profits.

This article studies strategic default on forward sale contracts in the international coffee market. To test for strategic default, we construct contract-specific measures of unanticipated changes in market conditions by comparing spot prices at maturity with the relevant futures prices at the contracting date. Unanticipated rises in market prices increase defaults on fixed-price contracts but not on price-indexed ones. We isolate strategic default by focusing on unanticipated rises at the time of delivery after production decisions are sunk and suppliers have been paid. Estimates suggest that roughly half of the observed defaults are strategic. We model how strategic default introduces a trade-off between insurance and counterparty risk: relative to indexed contracts, fixed-price contracts insure against price swings but create incentives to default when market conditions change. A model calibration suggests that the possibility of strategic default causes 15.8% average losses in output, significant dispersion in the marginal product of capital, and sizable negative externalities on supplying farmers.

Despite extensive evidence that preferences are often time-inconsistent, there is only scarce evidence of willingness to pay for commitment. Infrequent payments for frequently provided goods and services are a common feature of many markets and they may naturally provide commitment to save for lumpy expenses. Multiple experiments in the Kenyan dairy sector show that: (i) farmers are willing to incur sizable costs to receive infrequent payments as a commitment device, (ii) poor contract enforcement, however, limits competition among buyers in the supply of infrequent payments. We then present a model of demand and supply of infrequent payments and test its additional predictions.

Organizations depend on members' “loyalty” for their success. Studying a cooperative's attempt to increase deliveries by members, we show that the threat of sanctions leads to highly heterogeneous response among members. Despite the cooperative not actually enforcing the threatened sanctions, positive effects for some members persist for several months. Other members “exit,” stopping delivering altogether. Among non-compliant members we document substantial heterogeneity in beliefs about the legitimacy of the sanctions. This lack of common understanding highlights the role played by managers in organizations and provides a candidate explanation for lack of sanctions enforcement documented by Ostrom (1990) and other studies.

This paper provides evidence on the importance of reputation in the context of the Kenyan rose export sector. A model of reputation and relational contracting is developed and tested. A seller's reputation is defined by buyer's beliefs about seller's reliability. We show that (i) due to lack of enforcement, the volume of trade is constrained by the value of the relationship; (ii) the value of the relationship increases with the age of the relationship; and (iii) during an exogenous negative supply shock deliveries are an inverted-U shaped function of relationship's age. Models exclusively focusing on enforcement or insurance considerations cannot account for the evidence.

Social movements are catalysts for crucial institutional changes. To succeed, they must coordinate members’ views (consensus building) and actions (mobilization). We study union leaders within Myanmar’s burgeoning labor movement. Union leaders are positively selected on both ability and personality traits that enable them to influence others, yet they earn lower wages. In group discussions about workers’ views on an upcoming national minimum wage negotiation, randomly embedded leaders build consensus around the union’s preferred policy. In an experiment that mimics individual decision-making in a collective action setup, leaders increase mobilization through coordination.

Violent conflicts, particularly at election times in Africa, are a common cause of instability and economic disruption. This paper studies how firms react to electoral violence using the case of Kenyan flower exporters during the 2008 post-election violence as an example. The violence induced a large negative supply shock that reduced exports primarily through workers’ absence and had heterogeneous effects: larger firms and those with direct contractual relationships in export markets suffered smaller production and losses of workers. On the demand side, global buyers were not able to shift sourcing to Kenyan exporters located in areas not directly affected by the violence nor to neighboring Ethiopian suppliers. Consistent with difficulties in insuring against supply-chain risk disruptions caused by electoral violence, firms in direct contractual relationships ramp up shipments just before the subsequent 2013 presidential election to mitigate risk.

We marketed a training program for lower level managers (line supervisors) to large factories in the Bangladeshi ready-made garment industry. Take-up of the program (even for a free slot) was low, due to intense production pressures, fire-fighting and concerns over retention of trained workers. Take-up is quite insensitive to pricing. There was higher interest and demand in training modules aimed at improving production processes and quality, rather than human resources and social compliance. Since the program was priced close to a commercially viable rate, it might be possible to develop a market provided they could be proved to be effective.

We study communication frictions within multinationals (MNCs), hypothesizing that language barriers reduce management knowledge transfers within the organization. A distinct feature of such MNCs is a three-tier hierarchy: foreign managers (FMs) supervise domestic managers (DMs) who supervise production workers. Tailored surveys from our setting – MNCs in Myanmar – reveal that language barriers impede interactions between FMs and DMs. A first experimental protocol offers DMs free English courses and confirms that lowering communications costs increases their interactions with FMs. A second experimental protocol that asks human-resource managers at domestic firms to rate hypothetical resumes reveals that multinational experience and, specifically, DM-FM interactions are valued in the domestic labor market. Together, these results suggest that reducing language barriers can improve transfers of management knowledge, an interpretation supported by improvements in soft skills among treatment DMs in the first experiment. A model in which communication within MNCs is non-contractible – a realistic feature of workplace life – reveals that the experimental results are consistent with underinvestment in language training and provide a rationale for policy intervention.