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This study aims to demonstrate that the investments in social capital do not always pay off. Although an important function of social capital is its potential for influencing co‐located companies' opportunistic behavior, social capital also has a negative side. This study seeks to examine the negative and positive effects of the social capital dimensions on a company's profitability and on the perception that co‐located firms free ride and shirk.

By including data from 224 firms in 112 true‐paired dyadic relationships, this study provides a unique and valid basis for empirical study within SEM analysis. The ability to link different information sources in the analysis creates a unique data set that controls for the confounding effects of common method biases in the analysis.

Markets with a low degree of collective activity gain less advantage from cognitive social capital, because its primary effect lies in its transparency and ability to detect opportunistic behavior. The effect of relational social capital is more stable because of the positive direct effect on profitability. Structural social capital indicates markets that would benefit from creating private incentives with the intention to transfer collective activities into private payoffs. This reduces the need to follow up the co‐localized businesses.

This study shows that the dimensions of social capital vary regarding whether they reduce or facilitate the perceived withholding efforts by co‐located firms.

While anecdotal evidence suggests that performance-based contracts (PBCs) may foster innovation in buyer-supplier relationships, the understanding of the underlying mechanisms is limited to date. The purpose of this paper is to draw on transaction cost economics and agency theory to develop a theoretical model that explains how PBCs may lead to innovation.

Using data on 106 inter-organizational relationships from the Dutch maintenance industry, the authors investigate how the two main features of PBCs – low-term specificity and performance-based rewards – affect incremental and radical innovation.

The authors find that term specificity has an inverse-U-shaped effect on incremental innovation and a non-significant negative effect on radical innovation. Furthermore, pay-for-performance has a stronger positive effect on radical innovation than on incremental innovation. The findings suggest that in pursuit of incremental innovation, organizations should draft contracts with low, but not too low, term specificity and incorporate performance-based rewards. Radical innovation may be achieved by rewarding suppliers for their performance only.

The findings suggest that in pursuit of incremental innovation, organizations should draft contracts with low, but not too low, term specificity and incorporate performance-based rewards. Radical innovation requires rewarding suppliers for their performance only.

The purpose of this paper is to analyze the impact of corruption on trade.

The authors estimate gravity equations with the last econometric advances on a wide sample of countries and years using three different measures of corruption. Two of them belong to the so-called perception-based indexes and the third is derived from a structural model that takes into account the causes and indicators of corruption across countries.

A negative effect of corruption on trade appears with perceptions, but it is not widespread. However, the authors find sensible evidence of the “grease the wheels” view with the structural index if low and middle income countries are implicated. Additionally, when using this measure, differences in corruption levels negatively impact trade. Both results are in line with expectations.

Moreover, membership in regional trade agreements does not seem to significantly alter these results.