Interfirm Cooperation in Strategic Relationships: The Role of Formal Contract

Interfirm Cooperation in Strategic Relationships: The Role of Formal Contract

Jean Beuve (Chaire EPPP ) and Stéphane Saussier (Chaire EPPP)

In this paper, we use a large database of more than 3700 strategic relationships in force between French firms in 2003 to study the way they achieve cooperation. We find that cooperation is enhanced by a partner's reputation and the perceived balance of the relationship. Our results also suggest that while formal contracts have a negative impact on ex-post cooperation when relationships are "simple", contracts are enhancing factor of cooperative behaviors as soon as the intrinsic hazards of the relationship require higher ex-ante contractual safeguards to secure agreements. As a result, formal contracts can, on the one hand, have a pernicious effect on the willingness of firms to implement cooperative behaviors; and, on the other, and under precise circumstances, appear a prerequisite allowing the emergence of ex-post interfirm cooperation.