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Relational contract theory holds that the interpretation of a contract must take full account of the context and surrounding circumstances of the parties' bargain so as to give effect to their respective intentions. This paper argues that if a relational treatment of contracts is to be institutionalised, in the sense of being utilised in a contract dispute to determine and give effect to the parties' intentions, then it must operate at an abstract level. That is to say, rather than using relevant context to determine what the actual parties intended in the circumstances at hand, the contextualist enquiry should ascertain the relevant context by reference to what the parties would have agreed to in the circumstances, had they properly reflected on what their self-interest requires. I discuss the merits of this proposition by reference to a number of appellate judgments, which already endorse contextualism as a response to contractual ambiguity, and I ultimately apply it to the Supreme Court's judgment in Rainy Sky SA v Kookmin Bank. [ABSTRACT FROM AUTHOR]

More companies have realized that information technology (IT) outsourcing, once viewed as a cost reduction tool, could facilitate and even enable the transformation of their core business processes. The benefits from a potential outsourcing relationship expansion have strategic implications for relational incentive provision. Modeling "information poaching" in IT outsourcing as an incentive problem with contractibility constraints, our analysis shows that this problem could be mitigated in a repeated game where the outsourcing client and the service provider agree on a relational contract. When the two partners share the belief that they can potentially benefit from a future relationship expansion, they are more likely to behave cooperatively during the early stages of their relationship. However, when they disagree about the likelihood of the future relationship expansion, they will have different preferences on a set of otherwise equivalent relational bonus contracts. Specifically, they will adopt a relational contract with large but infrequent bonuses when the client is more optimistic than the service provider about the potential of their relationship. Because these results hold even when the sourcing partners' beliefs are very close to each other, our analysis sheds fresh light on the issue of equilibrium selection in relational contract theory. In the context of IT outsourcing, the results of this study suggest that, because salient forms of relational bonuses are often not adopted, relational incentive provision is likely more pervasive than what we can observe. [ABSTRACT FROM AUTHOR]

The research proposes an overview of the importation of a Relational Project Delivery Agreements (RPDAs) procurement in Italian legislation and the related issues. The AEC sector fragmentation, caused by an increase of building complexity and a change in the industry structure, is demanding a collaborative approach to the project to allow the possibility of a holistic vision based on a BIM approach. This work provides an overview of RPDAs applications on different contexts, highlighting benefits and issues related, including litigation resolution processes. A special focus has been kept on Italian context, where the stagnant construction market needs to be revolutionized, and better interactions among stakeholders are required. The research imports and adapts a collaborative procurement model, FAC-1 (Framework Alliance Contract), on Italian framework, tailoring the most important features of the model to the Italian legislation. The goal of this work is providing a methodology to validate a standard form of contract, aiming at an added value to construction sector and at applying them to framework agreements. Further developments consist in guidelines for contract management and evaluation of the project behaviour during different phases of the process.

The main rationale for involving contractors is to apply collaboration to mitigate risk and to harvest opportunities to reduce cost and to increase the project owner's value. In the paper we argue in the applied analytical model that there are four levels of early contractor involvement (ECI), which are 1) Preparation of the project (before sparking off competition); 2) During the procurement phase (development of what to build); 3) Project delivery model (before construction contract, but after the contractor and designers are selected); 4) Project delivery model (where involvement also continues in the execution phase). In the paper we argue that category 4 have the largest potential in term of project risk mitigation and possibility exploitation, and category 1 least. Three road construction case studies are conducted. The findings show that each project had different approaches to contractor involvement, and different PDM. Case 1 and 2 can be identified to be in category 2, while case 3 are in category 4. However, case 3 has reached to short in the execution phase to reveal the expected potential when contractor involvement also continues in the execution phase. It seems, however, like all approaches to ECI had positive impacts on the relationship between the client and contractor. Further empirical studies have to be conducted to improve the addressed analytical/theoretical generalization. [ABSTRACT FROM AUTHOR]

We analyze ownership of public goods in a repeated game focusing on common ownership. Under common ownership an owner's access to the public good cannot be restricted by other owners. We find that under common ownership both the value of the relationship and the gain from deviation are high. Common ownership can provide the best incentives for cooperation when the value of the public good cannot be increased much by maintenance investments or the maintenance costs are sufficiently convex. We argue that these conditions are satisfied in Ostrom's field studies of irrigation systems and common lands. [ABSTRACT FROM AUTHOR]

Interfirm contracts are plagued by opportunism arising from exchange hazards that increase the seller's gains from holdup in fixed price contracts. These exchange hazards are higher when the seller can engage in unverifiable deliberate obfuscation. Although cost-plus contracts reduce holdup losses, they suffer from cost inefficiency. Past research has underscored the importance of trust as a control instrument to mitigate losses from exchange hazards, especially social relational trust that develops from past experiences. However, trust can also be calculative when it develops from the expectation of future economic gains to the buyer-seller dyad. We identify two dyadic mechanisms that generate calculative trust and curtail the likelihood of cost-inefficient behavior in cost-plus contracts. These mechanisms include future potential and bilateral reputation capital for cost containment. Analysis using probit estimations on 149 information technology outsourcing contracts for the period 1998 to 2005 suggests that calculative trust increases the likelihood of cost-plus contracts. Thus, calculative trust can mitigate inefficiencies in interfirm contracts. This paper was accepted by Shiva Rajgopal, accounting. [ABSTRACT FROM AUTHOR]

Teamwork and team incentives are increasingly prevalent in modern organizations. Performance measures used to evaluate individuals' contributions to teamwork are often non-verifiable. We study a principal-multi-agent model of relational (self-enforcing) contracts in which the optimal contract resembles a bonus pool. It specifies a minimum joint bonus floor the principal is required to pay out to the agents, and gives the principal discretion to use non-verifiable performance measures to both increase the size of the pool and to allocate the pool to the agents. The joint bonus floor is useful because of its role in motivating the agents to mutually monitor each other by facilitating a strategic complementarity in their payoffs. In an extension section, we introduce a verifiable team performance measure that is a noisy version of the individual non-verifiable measures, and show that the verifiable measure is either ignored or used to create a conditional bonus floor. [ABSTRACT FROM AUTHOR]

When outsourcing design tasks, firms want their suppliers to be both efficient and adaptive. Whereas efficiency is necessary to reap economic gains from outsourcing, adaptation is required to deal with interdependencies as the design evolves. Achieving both objectives simultaneously, however, is difficult because procurement contracts require a trade-off between providing incentives for efficiency and facilitating adaptation. In the presence of formal contracts that provide strong incentives for efficiency, ensuring adaptation thus requires effective relational contracts between the buyer and the supplier. But because the focus of prior research has been on dyadic buyer–supplier relationships, it is unclear how the efficiency–adaptation trade-off can be mitigated in the multitier supplier systems that are common in many industries. Addressing this gap, we argue that in hierarchical supplier systems, relational contracts between contractual partners become more important, but at the same time harder to establish, than in single-tier supplier systems. An in-depth case study of the adaptive frictions that arose in the Airbus A350 program allows us to illustrate this challenge of tiered outsourcing. Moreover, we show how Airbus came to resolve the frictions by leveraging skip-level ties—direct informal contacts to lower-level suppliers with which no contractual relationship existed, thus replacing the archetypal notion of a supplier hierarchy by a more complex relationship structure. We discuss the boundary conditions of our findings and suggest propositions for the emergence of skip-level ties in tiered outsourcing. [ABSTRACT FROM AUTHOR]

This paper develops a model in which a supply relationship can sustain higher effort levels if firms use cross-subsidized pricing. We model how quality concerns affect the relationship between a firm and its supplier. A firm concerned about uncontractible quality for a customizable good has to pay higher prices to sustain a relationship with the supplier. If the customizable good has sufficiently volatile demand, then a contract that includes a constant unit price premium only for this good cannot be sustained. Instead, the downstream firm pays a premium both for the customizable good and also for a good with more stable demand that is correlated with the demand for the customizable good. Our results imply that a supplier of customized goods should also supply other products, which can include goods that do not require customization, and both the supplier and buyer benefit from the greater pricing flexibility they achieve by trading multiple goods. [ABSTRACT FROM AUTHOR]

We study relationships between parties who have different preferences about how to tailor decisions to changing circumstances. Our model suggests that relational contracts supported by formal contracts may achieve relational adaptation that improves on adaptation decisions achieved by formal or relational contracts alone. Our empirics consider revenue-sharing contracts between movie distributors and an exhibitor. The exhibitor has discretion about whether and when to show a movie, and the parties frequently renegotiate formal contracts after a movie has finished its run. We document that such ex post renegotiation is consistent with the distributor rewarding the exhibitor for adaptation decisions that improve their joint payoffs. This paper was accepted by Joshua Gans, business strategy. [ABSTRACT FROM AUTHOR]

Although the extreme oppressive regimes of the 20th century resulted in a gap between justice and law, the concept of justice is an inherent part of private law. Implementation and enforcement of corrective justice as well as distributive justice are the underlying policy of private law. Promoting social justice in contract law requires state intervention either via the court judgments or via statutory measures. Contracts create social relationships between individuals. This influences the changing role of the welfare state in private law relationships. An understanding of justice may be assessing it as a kind of mathematical truth. The structure of private law is similar to the system of mathematics, since both are built on axioms and conclusions that are drawn from a closed logical chain. The law, however, requires correcting the results of logic with social evaluation, if this is necessary in order to implement the values of the good society. This makes law an art rather than science. [ABSTRACT FROM AUTHOR]

Some economic and informational problems associated with organizational information technology (IT) spending may be attributed to managerial rent-seeking. Because of the unavoidable incompleteness of labor contracts, managers with misaligned incentives and budgetary discretion could entrench themselves through their non-value-maximizing adoption decisions. In order to boost their bargaining power in future contract renegotiation, they invest excessively in technologies they manage more effectively than their potential rivals. In addition, they tend to adopt technologies that can create large information asymmetries giving them significant knowledge advantage over their potential rivals ex post. We study the implications and effects of their rent-seeking behavior within the context of organizational IT adoption and management. The efficacies and the limitations of formal incentive contracting are discussed to underscore the need for additional governance mechanisms. While knowledge management may mitigate some of the agency problems associated with entrenchment, managerial self-policing issue remains a challenge. We further explore the incentive provision potential of relational labor contracts in combating entrenchment. [ABSTRACT FROM AUTHOR]

This study of risk sharing in the Italian high precision air conditioning (AC) industry confirms agency theory predictions that buyers absorb risk to a non-negligible degree, and that they absorb more risk (a) the greater the supplier's environmental uncertainty, (b) the more risk averse the supplier, and (c) the less severe the supplier's moral hazard. The analyzed buyers accommodate for unforeseen and uncontracted-for cost fluctuations, which is consistent with relational contract theory. The study clarifies the relationship between risk sharing and the supplier's size, technological capability, financial stability, and cost fluctuation. It also suggests how buyers may adjust their risk-sharing strategy as suppliers grow, develop technological capabilities, and change financial structure. Copyright © 2007 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

Consider a firm developing an innovative product. Due to market pressures, production must begin soon after the product development effort is complete, which requires that an upstream supplier invests in capacity while the design of the product and production process are in flux. Because the product is ill-defined at this point in time, the firms are unable to write court-enforceable contracts that specify the terms of trade or the supplier's capacity investment. However, the firms can adopt an informal agreement (relational contract) regarding the terms of trade and capacity investment. The potential for future business provides incentive for the firms to adhere to the relational contract. We show that the optimal relational contract may be complex, requiring the buyer to order more than her demand to indirectly monitor the supplier's capacity investment. We propose a simpler relational contract and show that it performs very well for a broad range of parameters. Finally, we identify characteristics of the business environment that make relational contracting particularly valuable. © 2007 INFORMS.

Smart contracting (SC) is a proactive proposal to operationalize the relational contract theory for the upgrade and improvement of legally relevant exchange. The dynamic institutional environment of the European Union (EU) is a suitable framework for this proposal. SC addresses the interests of the business management, law and information technology practices with a perspective of influence in digital exchange, communication processes and other human and human-machine interactions. This position paper restates the advantages of the concept by highlighting the practical transition pathway SC offers to moderate the growing haste towards the embeddedness of exchange in automated and distributed models. This theoretical contribution supports the systematization of the proactive and legal design research field, and explains the characterization, operationalization and specification of the SC concept.

Research summary: A key strategic decision for many firms is the scope of their relationships with partners. Existing theories of relationship scope are limited in that they disregard the facts that: (a) most firms transact within networks of multiple partners, and (b) these partnerships often involve two‐sided moral hazard. We develop a theory of partnership scope in interfirm networks that addresses these deficiencies. We show how, by broadening the scope of business it conducts with its partners, a firm can reduce externalities between them, and thereby sustain self‐enforcing exchange relationships ("relational contracts") in which both parties cooperate with each other repeatedly and maximize the value created. We discuss numerous settings in which our model applies, including franchising, supply chains, and platform‐based ecosystems. Managerial summary: A key strategic decision for many firms is the number of transactions or activities they conduct with a given supplier, business customer, or company that sells complementary products or services. We offer a theory to explain why firms often prefer relationships with broader scope. Whereas other theories are based on the ability to leverage partner knowledge or cheaper supervision, our theory is based on the concept of a "relational contract", in which a firm and its partner cooperate with each other repeatedly according to an informal agreement between them. We show that under relational contracting, broader scope relationships encourage better mutual cooperation than narrow scope relationships, thereby maximizing the value created by them. We discuss how our model applies to franchising, supply chains, and platform‐based ecosystems. [ABSTRACT FROM AUTHOR]

In an environment subject to random fluctuations, when does an increase in the breadth of activities in which individuals interact together help foster collaboration on each activity? We show that when players, on average, prefer to stick to a cooperative agreement rather than reneging by taking their privately optimal action, then such an agreement can be approximated as equilibrium play in a sufficiently broad relationship. This is in contrast to existing results showing that a cooperative agreement can be sustained only if players prefer to adhere to it in every state of the world. We consider applications to favor exchange, multimarket contact, and relational contracts. [ABSTRACT FROM AUTHOR]

We analyze relational contracts between a principal and a set of risk-neutral agents whose outputs are correlated. When only the agents' aggregate output can be observed, a team incentive scheme is shown to be optimal, where each agent is paid a bonus for aggregate output above a threshold. We show that the efficiency of the team incentive scheme depends on the way in which the team members' outputs are correlated. The reason is that correlation affects the variance of total output and thus, the precision of the team's performance measure. Negatively correlated contributions reduce the variance of total output, and this improves incentives for each team member in the setting that we consider. This also has implications for optimal team size. If the team members' outputs are negatively correlated, more agents in the team can improve efficiency. We then consider the case where individual outputs are observable. A tournament scheme with a threshold is then optimal, where the threshold depends on an agent's relative performance. We show that correlation affects both the efficiency and design of the optimal tournament scheme. This paper was accepted by Shivaram Rajgopal, accounting. [ABSTRACT FROM AUTHOR]

• We provide an experimental test of the causal role of asymmetric information for sustaining relational contracts. • We study the role of asymmetric information in both trust contract and bonus contract settings. • We find that asymmetric information has strong consequences for the distribution of rents. • However, it does not reduce efficiency of relational contracts. • Our paper therefore contributes to the understanding of the formation of relational contracts and how they are affected by variations in information. Work and trade relationships are often governed by relational contracts, in which incentives for cooperative action today stem from the prospective future benefits of the relationship. In this paper, we study how a lack of hard information about the costs of providing quality, and therefore about the financial consequences of actions, affects relational contracts in buyer-seller relationships. The absence of verifiable information can impede the joint understanding of what constitutes cooperative behavior, and may thus inject mistrust into relationships. Comparing seller-buyer relationships with hard (verifiable) and soft (non-verifiable) information about seller costs in the laboratory, we find that soft information affects the terms of relational contracts. However, the party negatively affected by these adjustments does not reciprocate with efficiency-reducing actions. We therefore find that asymmetric information only affects the distribution of rents, and not efficiency. [ABSTRACT FROM AUTHOR]

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We model the interaction of a single buyer with a single supplier within a market in a developing country with homogeneous local suppliers and homogeneous buyers from developed nations. The buyer sources a product from a supplier and then inspects and sells it on the market, subject to quality standards such as regulations about chemical content. Suppliers decide how much effort to exert to ensure compliance with quality standards. Buyers are assumed to comply with contracts because they are based in countries with strong legal systems. We assume that legal enforcement of the supplier's contractual obligations is not possible. We model the interaction between buyer and supplier as a repeated game in which the partnership can be terminated by the buyer if the supplier refuses to pay penalties for quality violations. After termination, the buyer and supplier each search for a new business partner. We model the interaction between buyer and supplier using relational contacts in which penalties for quality failures are set so that the supplier voluntarily pays them. We show that optimal relational contracts have dynamic form in this setting because the value of the outside option available to the parties, if the relationship is terminated, is determined by the contract terms. We characterize the properties of the optimal dynamic equilibria and analyze the use of third-party quality certifications within this framework. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2990. This paper was accepted by Martin Lariviere, operations management. [ABSTRACT FROM AUTHOR]

Abstract Smart contracts, self-executing agreements based on blockchain technology, have the capacity to create trust in what we term no-trust contracting environments. We argue that using them in such environments is the path to unleash the full potential of smart contracts. Compared to the contract enforcement mechanisms characterized by traditional contract law or relational contracts, smart contracts can offer a superior solution for facilitating trade. Several lawyers and economists have debated whether smart contracts might offer the prospect of cheaper, faster and better transactions. As we discuss below, contract law scholars caution that they neither replicate the relational context essential for the day-to-day practice of contracting nor offer a superior solution to problems addressed by traditional contract law, such as contract validity and legality. We clarify and systematize the current thinking on the legal nature and reliability of smart contracts, and address the concerns of contract law scholars. While doing that, we suggest a step forward in characterizing contracting environments, contract enforcement mechanisms and the trust relationship underlying contracts. [ABSTRACT FROM AUTHOR]

I study licensing and technology choice in standard setting. I find that there may be inefficient adoption of technologies, even when firms commit to a maximum royalty or price cap for the use of their patents. When firms interact repeatedly to develop standards, a commitment to set fair, reasonable and non-discriminatory (FRAND) royalty fees may lead to more efficient technologies and higher surplus for all parties. This result can explain why standard-setting organizations favor FRAND commitments over more structured licensing commitments—such as price caps—and why there are been relatively few cases of hold-up in practice, even though such opportunistic behavior has been a primary cause of concern for innovation economists. [ABSTRACT FROM AUTHOR]

This paper uses the Toyota-Astra partnership in the Indonesian automotive sector as a case study to understand changes in the boundaries of hybrid arrangements. Using Menard's typology of hybrid arrangements, we identify the partnership's initial arrangement as a quasi-strategic center with the Japanese partners holding full control over strategic decisions regarding production. Later, this arrangement changed to an information-based network following the separation of assembly operations from the partnership. Despite this change, Astra's relationship with Toyota's suppliers continues to function under a quasi-strategic center arrangement with a slight adjustment in the allocation of decision rights over production in order to accommodate Astra's growing internal capabilities in component manufacturing. Moreover, this change was followed by the adoption of new relational contracts that made the supplier system resemble more closely to Toyota's original system in Japan. [ABSTRACT FROM AUTHOR]

CEOs are routinely compensated for aspects of firm performance that are beyond their control. This is puzzling from an agency perspective, which assumes performance pay should be efficient. Working within an agency framework, we provide a rational for this seemingly inefficient feature of CEO compensation by invoking the idea of informal agreements, specifically the theory of relational contracting. We derive observable implications to distinguish relational from formal contracting and, using ExecuComp data, find that CEOs' annual cash and equity incentive payments positively correlate with the cyclical component of sales and respond to measures of persistence as relational contracting theory predicts. [ABSTRACT FROM AUTHOR]

A feature of the Ghana private rental accommodation market is that landlords usually demand advance rent of, in some instances, up to 5 years before signing a tenancy agreement. This is in violation of the 1963 Rent Act and recent initiatives are in the direction of curing this problem in the interest of protecting prospective tenants. However while advance rent is a financial burden this is offset by transaction costs in the housing market. Hence, in this paper and influenced by New Institutional Economics, I argue that it is possible for tenants and landlords to continue to bargain outside the shadow of the law to secure mutually beneficial tenancy agreements. [ABSTRACT FROM AUTHOR]

We present evidence from an indefinitely repeated gift-exchange game where market structures affect proposers’ ability to punish uncooperative partners and their ability to sort between cooperative and uncooperative partners. Treatments vary by whether subjects can replace their partners, and if not, whether they can reduce their gift from one round to the next. Comparing treatments without contract restrictions, our replacement treatment is no different initially but has higher cooperation in the long run. Comparing treatments without replacement, our treatment with contract restrictions has lower cooperation initially but is no different in the long run. Neither of these findings are predicted by theories of repeated games based on the ability to punish, however, both findings are consistent with a simple sorting model. [ABSTRACT FROM AUTHOR]

A public-private partnership contract has the character of a relational contract. Relational contracts are incomplete agreements governing transactions where the contracting parties have mutually agreed that it is impossible or economically inefficient to contractually define ex ante possible difficulties and contingencies in the contract implementation, nor the difficulties and contingencies underlying the ex post control of contract performance by a third entity (court or arbitration). Considering the methodology of managing relational contracts, it is essential that the theory of relational contracts does not advocate for the establishment of relational contracts as a separate category of contracts, with specifically designated contractual instruments. This theory defines the relational contract as a category which legitimizes 'the relational mode' of a particular contract. The methodology of relational contracts is important for contracts on public-private partnership as it ensures that the contractual relationship is aligned with the changes in the immediate environment where the PPP contract operates. The aforementioned alignment has two aspects. The first one is the ex ante aspect of the alignment which is primarily aimed at preventing the detrimental effect of such alignment to the public partner's interests. Therefore, the intent to prevent such an effect shall be taken into account when defining the criteria for the selection of the most favorable private partner and the best offer. At the same time, it is essential to establish verifiable standards for measuring the private partner performance in the phase of contract implementation. For this goal to be achieved, it is crucial to specify the subject matter of the private partner's obligations, to establish the priority rank of PPP project objectives, to elaborate on the specific requirements governing the eligibility of private partners to participate in the bidding process, to specify the 'value for money' which the public partner will obtain by the implementation of the contract, and to ensure an adequate structural framework of the PPP contract. The second one is the ex post aspect of alignment which involves alignment of the contract to the contextual changes in the contract environment during the contract period. In this regard, the key principles are the principles of solidarity and cooperation.

The province of Quebec, Canada, seeks to implement relational alternate project delivery methods to achieve sustainability and energy efficiency in public construction. However, the relational differences between the formal written parts of different delivery methods have yet to be analyzed and understood, as is the case with the relational aspects of contracts and the achievement of sustainable and energy-efficient infrastructure. Using a hermeneutic interpretation of Macneil’s relational contract norms and grounded theory, 26 contracts involving Quebec’s largest public client of vertical infrastructure and representing three different types of project delivery methods (design–bid–build (DBB), design–Build (DB), and construction manager–general contractor/integrated project delivery (CMGC/IPD)) were analyzed using NVivo. It was found that CMGC/IPD is the most relational project delivery method available to Quebec’s public clients, namely because of the public client’s active involvement in the realization process, the increasing complexity of roles, the multitude of common management structures, and the internalization of sustainability measures and conflict resolution. Furthermore, Quebec’s CMGC/IPD was found to be an IPD-ish delivery method, lacking the early involvement of the construction manager and the risk/reward sharing mechanisms necessary to achieve pure IPD status. The findings and theoretical considerations discussed here will help policymakers, contract drafters, and public clients interested in implementing relational contracting practices in public construction projects.

Framework contracts are a frequently used tool in the legal dealings. However, they have been studied scantily in the Colombian legal doctrine despite the difficulties they posit in both the theory and the practice. This paper aims to examine the notion of framework contract in order to differentiate it from other related legal concepts, study its legal nature, and ascertain its legal effects. [ABSTRACT FROM AUTHOR]

The holistic (comprehensive] approach to the methodological framework for the analysis of public-private partnership is essential presumption for the transformation of the public and private interests from the conflicting ones to the parallel and convergent ones. Private and public interests are to be regarded not as the divided particulars but as the element of the dynamics of PPP as a whole. The holistic approach facilitates interaction which brings new 'added values' in the exercise of the public interest by using the PPP construction: economic, social and political. This concept allows the PPP to 'take the best of both worlds' (the protection of the public interest and solidarity from the public sector, and the entrepreneurial logic from the private sector]. In light of the sui generis structure of mutual relations between the public and the private partner in the PPP framework, the contractual basis of public-private partnership has the character of relational contracts. Relational contracts differ from traditional contracting mechanisms. The parties to traditional contracts have equal information at their disposal, which enables them to define ex ante the terms of the transaction insofar as the consequences of performance or non-performance are anticipated at the time of contract conclusion. On the other hand, relational contracts are incomplete agreements: the parties to relational contracts mutually agree that it is impossible or economically inefficient to define ex ante the possible difficulties and circumstances of the transaction at issue (which is possible in classical contracts]. In this respect, in relational contracts the rationale for commitment is relatively flexible. The public-private partnership agreement is a relational contract. Relational contracts within the PPP framework limit the opportunistic behaviour on both parties and promote the development of their co-operation and exchange of information. Relational contracts are idiosyncratic (unlike traditional contracts which may be standardized and embodied in a specific legal form]. Public private partnerships agreements have to align the principle of hierarchy on which the public partner has based its activities (a high level of administrative control and the lack of economic incentives] with the principles of market economy underpinning the logic and the operation of the private partner.

Firm survival in emerging economies is often related to having access to valuable resources that are in stakeholders‟ hands. However, the literature on strategy in emerging economies provides scant information on the efficiency of acquiring stakeholder resources and its effect on firm performance. We investigated the stakeholder interaction effects on performance of domestic firms competing in an emerging market (Wright, Filatotchev, Hoskisson, & Peng, 2005) from a contractual perspective (Williamson, 1985). We argue that interacting stakeholders in a contractual set yield synergistic governance structures that allow firms more efficient access to external resources. Using a sample of 267 firms in Brazil (secondary data), we explored different patterns in stakeholder contracting with community, government, top management, and employees. A three-stage analysis process was devised: cluster analysis, general linear model estimation and verification tests. Results suggest that stakeholder interaction has a positive impact on firm performance. The conjoint effect of government and community contracts was found to yield superior firm performance as they provide a basic structure for contracting with other interacting stakeholders.

In a laboratory experiment, we study behaviour in a contract farming game without third-party enforcement but with an external spot market as outside option. We examine if and how relational contracts and personal communication support private-order enforcement. We find mixed evidence for our private ordering hypothesis. While relational contracting significantly reduces contract breach in general, the possibility for 'direct bargaining communication' has no additional positive effect. Both parties benefit from a well-functioning relation in the long run, yet most subjects are not willing to sacrifice short-term gains. If reputational mechanisms are absent, premiums are offered (but not paid). [ABSTRACT FROM AUTHOR]

Relational contracts are key to supply chain collaboration. The literature has focused on the role of trust stemming from prior business with current suppliers. However, the role of expected future business volume on the make-or-buy decision has been relatively neglected. This paper contributes to the literature by examining how the level of expected future business volume affects the make-or-buy decision, that is, the choice to produce the product or service internally rather than to outsource it. Using regression analysis of secondary data from 12,272 construction projects and controlling for endogeneity, our results show that expected future business volume promotes outsourcing and that this impact is larger when the level of prior business with external suppliers is stronger and there is more specificity in the relationship. Our results are consistent with a game theoretic logic in which informally promising future interactions to sustain collaboration is more credible to external suppliers than to internal units because the former can use their assets elsewhere. Also, our results suggest that trust stemming from prior business reinforces the calculativeness logic that stems from the expectation of future business. [ABSTRACT FROM AUTHOR]

This paper applies the theory of relational contracts to a model in which a couple decides upon fertility and subsequently on continuation of the relationship. We formalize the idea that within-household-cooperation can be supported by selfinterest. Since the costs of raising children-a household public good-are unequally distributed between partners, a conflict between individually optimal and efficient decisions exists. Side-payments can support cooperation but are not legally enforceable and thus have to be part of an equilibrium. This requires stable relationships and credible punishment threats.Within this framework, we analyze the effects of separation costs and post-separation alimony payments on couples' fertility decisions. We derive the predictions that higher separation costs and higher alimony payments facilitate cooperation and hence increase fertility. We present empirical evidence based on a recent German reform that reduced rights to post-divorce alimony payments. We find that this reform reduced in-wedlock fertility. [ABSTRACT FROM AUTHOR]