Development Economics X Paper Model Eight
In our model, each firm in a supply network faces a self-control-based trade-off between investing in stronger relationships with their suppliers and saving costs in the short-term. A firm wants to have robust and reliable supply relationships in the long-term, but also wants to minimize their expenses in the present. This could lead to underinvestment in relationship strength as well as fragility in the supply network for strictly psychological reasons. A possible commitment device for this problem could be a contract or an agreement that specifies the minimum level of investment or quality that each firm must provide to their suppliers or customers. This could create incentives and penalties for maintaining strong relationships and avoiding disruptions in the supply network. Alternatively, a commitment device could be a third-party intermediary or platform that monitors and enforces the quality and reliability of the supply relationships.
Opoku-Agyemang, Kweku (2023). "Supply Chain Self-Control." Development Economics Paper Model Eight.
© 2023 Development Economics X Corporation. All Rights Reserved.