contractual incompleteness

Industrial and Corporate Change, 2012, Vol 21 (4), 811-836

In this article, we use a large database of more than 3700 interfirm 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. Our results also suggest that while formal contracts have a direct negative impact on ex-post cooperation, they are an enhancing factor of cooperative behaviors as soon as the intrinsic hazards of the relationship require higher ex-ante contractual safeguards to secure agreements.

Relational Contracts as a Foundation for Contractual Incompleteness

Economics Bulletin, Volume 31, Issue 3, August 2011

Contractual incompleteness is generally defined by a trade-off between costs and benefits. We examine this trade-offin a dynamic setting and show how the ability of the parties to sustain a relational contract leads to more incomplete contracts.