Title: Firm-to-firm Referrals
(The paper is a joint work with Jing Cai, Wei Lin).
Abstract: "We conduct a randomized intervention in the industry producing the Chinese writing brush in which we refer suppliers and clients to each other. Referrals accompanied by an initial subsidy lead to subsequent unsubsidized transactions and crowd out prior business partners. Supplier firms grow and improve product quality. Among client firms, those with free capacity grow and expand into higher-quality second products. Referrals make both suppliers and clients search and partner more. We estimate private returns from the subsidy of 800-1700 percent and social returns from the intervention of 300 percent per year. Undervaluing potential partners appears to be an important matching friction."