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Rocco Macchiavello

London School of Economics and Political Science

Dr Rocco Macchiavello holds a PhD in Economics from LSE, where he is currently an Associate Professor in Management. Previously, Dr. Macchiavello has been a Post-Doctoral Fellow at Nuffield College (Oxford University), Harvard Kennedy School, and a Professor of Economics at Warwick University. Dr. Macchiavello acts as Lead Academic for the IGC – Myanmar Country Program and is a research affiliate with BREAD, CEPR and IPA. Dr. Macchiavello's research interests lie at the intersection of development, organisational and industrial economics. His research covers several topics (relational contracts, vertical integration, supply chain, lending models, risk management, management and productivity), countries (Bangladesh, Chile, Costa Rica, Colombia, Ethiopia, India, Kenya, Myanmar, Pakistan and Rwanda), and sectors (coffee, flowers, dairy and garments). For his research, he has collaborated with numerous government agencies, international organizations, social enterprises and large companies.
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publication
Buyers' Sourcing Strategies and Suppliers' Markups in Bangladeshi Garments

Do suppliers' margins in global value chains depend on buyers' approach to sourcing? We distinguish between international buyers adopting relational versus spot sourcing strategies in the Bangladeshi garment sector. Our data allow us to match inputs used by exporters to produce specific orders for different buyers. Within suppliers, we show that orders produced for relational buyers earn higher prices than comparable orders produced for spot buyers. These orders however do not differ in the type, prices, or effciency of variable inputs. We interpret these patterns through the lens of a model of garment production that allows for capacity constraints, order-varying input prices, and a technology that is specific to the exporter, product, and time combination. The model yields a sufficient statistic for differences in markups across orders and, thus, across buyers. Within exporter-product-time triplets, we find that relational buyers pay approximately 11% higher markups relative to spot buyers for comparable export orders. Additional evidence suggests that these higher markups reflect, at least in part, incentives paid to suppliers to undertake non-contractible actions.

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publication
Competition and Relational Contracts in the Rwanda Coffee Chain

How does competition affect market outcomes when formal contracts are not enforceable and parties’ resort to relational contracts? Difficulties with measuring relational contracts and dealing with the endogeneity of competition have frustrated attempts to answer this question. We make progress by studying relational contracts between upstream farmers and downstream mills in Rwanda’s coffee industry. First, we identify salient dimensions of their relational contracts and measure them through an original survey of mills and farmers. Second, we take advantage of an engineering model for the optimal placement of mills to construct an instrument that isolates geographically determined variation in competition. Conditional on the suitability for mills’ placement within the catchment area, we find that mills surrounded by more suitable areas: (i) face more competition from other mills; (ii) use fewer relational contracts with farmers; and (iii) exhibit worse performance. An additional competing mill also (iv) reduces the aggregate quantity of coffee supplied to mills by farmers and (v) makes farmers worse off. Competition hampers relational contracts directly by increasing farmers’ temptation to default on the relational contract and indirectly by reducing mills’ profits.

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publication
Strategic Default in the International Coffee Market

This article studies strategic default on forward sale contracts in the international coffee market. To test for strategic default, we construct contract-specific measures of unanticipated changes in market conditions by comparing spot prices at maturity with the relevant futures prices at the contracting date. Unanticipated rises in market prices increase defaults on fixed-price contracts but not on price-indexed ones. We isolate strategic default by focusing on unanticipated rises at the time of delivery after production decisions are sunk and suppliers have been paid. Estimates suggest that roughly half of the observed defaults are strategic. We model how strategic default introduces a trade-off between insurance and counterparty risk: relative to indexed contracts, fixed-price contracts insure against price swings but create incentives to default when market conditions change. A model calibration suggests that the possibility of strategic default causes 15.8% average losses in output, significant dispersion in the marginal product of capital, and sizable negative externalities on supplying farmers.

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publication
The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports

This paper provides evidence on the importance of reputation in the context of the Kenyan rose export sector. A model of reputation and relational contracting is developed and tested. A seller's reputation is defined by buyer's beliefs about seller's reliability. We show that (i) due to lack of enforcement, the volume of trade is constrained by the value of the relationship; (ii) the value of the relationship increases with the age of the relationship; and (iii) during an exogenous negative supply shock deliveries are an inverted-U shaped function of relationship's age. Models exclusively focusing on enforcement or insurance considerations cannot account for the evidence.

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