Working Paper: NBER ID: w29581
Authors: Achyuta Adhvaryu; Jean-François Gauthier; Anant Nyshadham; Jorge A. Tamayo
Abstract: We study relational contracts among managers using unique data that tracks transfers of workers across teams in Indian ready-made garment factories. We focus on how relational contracts help managers cope with worker absenteeism shocks, which are frequent, often large, weakly correlated across teams, and which substantially reduce team productivity. Together these facts imply gains from sharing workers. We show that managers respond to shocks by lending and borrowing workers in a manner consistent with relational contracting, but many potentially beneficial transfers are unrealized. This is because managers’ primary relationships are with a very small subset of potential partners. A borrowing event study around main trading partners’ separations from the firm reinforces the importance of relationships. We show robustness to excluding worker moves least likely to reflect relational borrowing responses to idiosyncratic absenteeism shocks. Counterfactual simulations reveal large gains to reducing costs associated with forming and maintaining additional relationships among managers.
Keywords: Absenteeism; Productivity; Relational Contracts; Managerial Economics
JEL Codes: D23; D86; L14; L23; M54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of relationships (C39) | productivity losses (J17) |
| reducing costs of forming relationships (L14) | productivity gains (O49) |
| worker absenteeism (J22) | line productivity (L23) |
| absenteeism fluctuations (J22) | productivity outcomes (O49) |