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The Economics of Relational (Social) Capital: Exploring the Value of Exchange Relationships in Industrial Procurement

49 Pages Posted: 3 Mar 2009 Last revised: 10 May 2010

Daniel W. Elfenbein

Washington University in St. Louis - John M. Olin Business School

Todd Zenger

University of Utah

Date Written: March 19, 2010

Abstract

Organization scholars have highlighted the value of relationships in fostering effective exchange, yet the empirical evidence supporting such claims remains largely indirect. We directly measure the value of ongoing relationships between suppliers and a large buyer, using the buyer’s choices in internet-enabled reverse auctions to estimate the degree to which stronger relationships with suppliers increase its willingness to pay for standardized commodity parts. This setting permits us to focus more sharply on the anticipated benefits generated by pre-existing relationships, while minimizing the confounding influence on partner selection that social attachments associated with these relationships may generate. Our empirical analysis suggests that repeated interaction between firms leads to the formation of relational assets that share a number of properties with physical capital. We thus label these assets “relational capital.” We find evidence that suggests that both social attachments and incentive considerations underpin the value of relational capital. Further, we find that relational capital exhibits more value in some settings than in others and that it exhibits diminishing marginal returns.

Keywords: relational capital, procurement, buyer-supplier relationships, social capital, relational governance

Suggested Citation

Elfenbein, Daniel W. and Zenger, Todd, The Economics of Relational (Social) Capital: Exploring the Value of Exchange Relationships in Industrial Procurement (March 19, 2010). Available at SSRN: https://ssrn.com/abstract=1351852 or http://dx.doi.org/10.2139/ssrn.1351852

Daniel W. Elfenbein (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

HOME PAGE: http://staff.olin.wustl.edu/faculty/ELFENBEIN

Todd R. Zenger

University of Utah ( email )

David Eccles School of Business
1655 East Campus Center Drive
Salt Lake City, UT 84112
United States
801 585-3981 (Phone)
801 581-7939 (Fax)

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