Law, pride, and contractual relations

Naghavi, Alireza (author), Pignataro, Giuseppe (author), Zajc Kejžar, Katja (author)

This paper provides theory and evidence on the role of informal institutions in contract enforcement, framed as the forfeiture of pride experienced by individualistic suppliers when they underperform or misappropriate others’ technology, and their interaction with law in shaping the behavior of firms. We demonstrate that achievement-oriented pride and self-esteem, more pronounced in individualistic societies, promote vertical integration in high-technology industries while encouraging outsourcing in low-technology sectors. Formal legal mechanisms mitigate the positive influence of pride on the longevity of business relationships, especially in high-technology sectors, where they act as a crucial substitute for deterring contract violations and infringement in less individualistic societies. For low-tech inputs, stricter law enforcement increases relationship duration up to a threshold level of individualism by compelling proud suppliers to invest despite receiving an insufficient payoff for their superior effort. This effect is more pronounced when their proportion is higher, suggesting a potential complementarity between law and pride in fostering longer-term relationships.

• Language: English
• Keywords: company performance, legislation, trust, international financial institutions, individualism, supplier relation longevity, legal institutions, firm organization, infringement, contract enforcement, pride
• Work type: Article
• Typology: 1.01 - Original Scientific Article
• Organization: EF - School of Economics and Business
• Publication status: Published
• Publication version: Version of Record
• Year: 2025
• Number of pages: 20 str.
• Numbering: Vol. 235, art. 107041
• PID: 20.500.12556/RUL-169294
• UDC: 339.5
• ISSN on article: 0167-2681
• DOI: 10.1016/j.jebo.2025.107041
• COBISS.SI-ID: 236640515
• Publication date in RUL: 22.05.2025

Record is a part of a journal

• Title: Journal of economic behavior & organization
• Publisher: Elsevier
• ISSN: 0167-2681
• COBISS.SI-ID: 28670209

Licences

• License: CC BY 4.0, Creative Commons Attribution 4.0 International
• Link: http://creativecommons.org/licenses/by/4.0/
• Description: This is the standard Creative Commons license that gives others maximum freedom to do what they want with the work as long as they credit the author.

Secondary language

• Language: Slovenian
• Keywords: poslovanje podjetja, zakonodaja, zaupanje, mednarodne finančne ustanove