Does 'Network Closure' Beef Up Firms’ Performance?

In this paper we study whether “network closure” in the supply chain can explain the heterogeneity observed in firms’ performance. Using unique panel data on trade flows among beef farms in the Italian region of Piedmont, we analyze a sequential supply chain characterized by the co-existence of two production goods: domestic cattle, of lower quality but less risky, and imported cattle, of higher quality but exposed to higher risks. Our findings indicate that trust and mutual cooperation, measured in terms of network closure (i.e., a third party which transforms a dyadic relation into a “closed” triad), increase the performance of farms adopting the riskier production system. On the other hand, network closure does not affect the performance of farms using the more established technology. Thus, trust among agents of a supply chain may promote the use of inputs of superior quality