Discretionary Latitude and Relational Contracting We use economic experiments to examine the nature of relational trading under a menu of incomplete contracts ranging from the repeat purchase mechanism of Klein and Leffler (1981) to highly incomplete contracts that are completely unenforceable by third-parties. Our results suggest that, with barriers to complete contracting, increasing the degr...

We examine the interacting effect of formal contracts and relational governance on vendor profitability and quality in the software outsourcing industry. We argue that the use of relational governance is driven by perceptions of exchange hazards but in a departure from extant literature, we propose that the benefits accruing from relational governance are asymmetric and depend on how the exchan...

Abstract. The form and regulation of contracts is of increasing importance to agricultural economists as farmers and agribusinesses increasing rely on contracts rather than markets to acquire inputs and sell outputs. We focus on the differences between the joint and individual surplus achievable under complete versus incomplete or relational contracts, where the latter are contracts that are no...

We investigate the use of information in repeated principal-agent game and report three results. First, consistent with Kandori (1992), garbling signals within each period hurts the e¢ ciency of the game. Second, contrary to Abreu, Milgrom, and Pearce (1991), bundling signals across periods and then fully revealing them never increases the e¢ ciency of the game. Third, and most importantly, we ...

How should a firm set policies– public decision plans that determine the role of its employees, divisions, and suppliers– to strengthen its relationships? We explore whether and how a principal might bias the decisions she makes to foster relational contracts with her agents. To this end, we examine a flexible dynamic game between a principal and several agents with unrestricted vertical transf...