No. 152 -The network contract

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by Chiara Bentivogli, Fabio Quintiliani and Daniele SabbatiniFebruary 2013

This paper studies the aggregation of firms and in particular network contracts, introduced into Italian legislation in 2009. This kind of contract addresses firms' need for more flexible coordination mechanisms. However, the vague nature of the contract's contents, which the signing firms can freely define, may reduce its reliability for third parties doing business with the network. A non-binding standardization of the contract's contents, guiding firms towards more efficient models, may render it more useful. Moreover, the incentives for the contract are part of a fragmentary set of fiscal measures and may distort firms' choices. Data show that network contracts have often been signed by firms with pre-existing partnerships or by those located in areas with many Marshallian industrial districts. However, one novel aspect is that partner firms are frequently located in distant regions. Probit regressions show that the probability of entering a network contract is positively correlated with a firm's size and growth and negatively with its profitability.

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