Networks, Trust and Search in Vietnam's Emerging Private Sector

Abstract

Using a survey of private firms in Vietnam, we examine how ongoing relationships serve information-provision and contract-enforcement purposes, substituting for absent market infrastructure. We find that ongoing relationships work when firms face high costs in finding alternative trading partners; the firms have access to information about their trading partners from other firms or from family members; and community sanctions are invoked if the trading partner reneges on the deal. Ongoing relationships have costs, however, in that inefficient matches can persist. These networks develop quite easily in response to the need for some contracting assurance; they need not be based on family ties.