ABSTRACT
This paper explores the role of culture in firm organization and its interplay with legal enforcement in determining the organization and longevity of buyer-supplier relationships. We provide theory and evidence, showing how individualism and legal enforcement interact and affect firm behavior in industries with different technological characteristics. A higher level of individualism in source countries encourages integration (outsourcing) in high- (low-) technology industries. Legal institutions could increase the duration of contractual relationships by encouraging customization effort by individualistic suppliers with a sense of pride, while preventing infringement of sensitive technologies by those less concerned about self-achievement. Enforcement could however adversely affect the continuity of trade relations in more individualistic societies.
Naghavi, Alireza and Pignataro, Giuseppe and Zajc, Katja, Culture, Law and Contractual Relations (January 2024), Centro Studi Luca d’Agliano Development Studies Working Paper No 487.
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