Risk sharing in supplier relations: an agency model for the Italian air‐conditioning industry

Arnaldo Camuffo · Andrea Furlan · Enrico Rettore

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Abstract

Abstract This study of risk sharing in the Italian high precision air conditioning (AC) industry confirms agency theory predictions that buyers absorb risk to a non‐negligible degree, and that they absorb more risk (a) the greater the supplier's environmental uncertainty, (b) the more risk averse the supplier, and (c) the less severe the supplier's moral hazard. The analyzed buyers accommodate for unforeseen and uncontracted‐for cost fluctuations, which is consistent with relational contract theory. The study clarifies the relationship between risk sharing and the supplier's size, technological capability, financial stability, and cost fluctuation. It also suggests how buyers may adjust their risk‐sharing strategy as suppliers grow, develop technological capabilities, and change financial structure. Copyright © 2007 John Wiley & Sons, Ltd.

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References

1976Markets and Hierarchies: Analysis and Antitrust Implications.1989Agency Theory: An Assessment and Review 1998The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage 1998The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage 1987Aggregation and Linearity in the Provision of Intertemporal Incentives 2002Relational Contracts and the Theory of the Firm 2003The Role of Trustworthiness in Reducing Transaction Costs and Improving Performance: Empirical Evidence from the United States, Japan, and Korea 1988Information, Incentives and Bargaining in the Japanese Economy

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