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Bohdan Kukharskyy, Michael Pflüger, Time is on my side: relational contracts and aggregate welfare, Oxford Economic Papers, Volume 71, Issue 3, July 2019, Pages 709–732, https://doi.org/10.1093/oep/gpy044
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Abstract
This paper develops a simple general equilibrium model which establishes a link between the patience of economic agents and the well-being of nations. We show that firms in long-term oriented countries can mitigate hold-up inefficiencies by engaging with their suppliers in relational contracting—informal agreements sustained by the value of future relationships. Our model predicts that countries with a higher level of patience will exhibit greater economic well-being and higher total factor productivity. We provide empirical evidence in line with the predictions of our theory.