What is a Relationship Worth? Repeated Exchange and the Development and Deployment of Relational Capital

Organization Science, Forthcoming

50 Pages Posted: 25 Mar 2013 Last revised: 11 Apr 2013

See all articles by Daniel W. Elfenbein

Daniel W. Elfenbein

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

Todd Zenger

University of Utah

Date Written: January 25, 2013

Abstract

Organization scholars have highlighted the value of relationships in fostering effective exchange, suggesting that repeated exchange creates a relational asset with latent value derived from elevated social connections, norms, and simple expectations of exchange continuity. Yet the empirical evidence supporting such claims remains largely indirect. As a consequence, few studies have been able to directly examine how contextual factors shape the accumulation of this relational asset or define its value in application. We directly measure the value of relationships between suppliers and a large buyer, using the buyer’s choices in Internet-enabled procurement auctions to estimate the degree to which stronger relationship histories with suppliers increase willingness to pay for high-volume commodity-like parts. Our setting also allows us to examine how this willingness to pay for relationships is shaped by the social context in which they develop and by the exchange context in which they are subsequently deployed, while minimizing the confounding influence any private individual interests have on the choice of exchange partners. Our empirical analysis suggests that, even for commodity parts, prior repeated exchange between firms constitutes a valuable relational asset. We also find evidence that suggests that both social mechanisms and incentive considerations underpin the value of relational capital. Further, we find that relational capital exhibits more value when exchange hazards are greater.

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

JEL Classification: D21, D23, L14, D44

Suggested Citation

Elfenbein, Daniel W. and Zenger, Todd R., What is a Relationship Worth? Repeated Exchange and the Development and Deployment of Relational Capital (January 25, 2013). Organization Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2239233

Daniel W. Elfenbein (Contact Author)

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

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

HOME PAGE: http://www.elfenbein.net

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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