Haggling for Rents, Relational Contracts, and the Theory of the Firm

Abstract

In this paper, a formal rent-seeking theory of the …rm is developed. The main idea is that integration (compared to non-integration) facilitates rentseeking for the integrating party, but makes it harder for the integrated one. In a one-period model, this implies that the rent-seeking contest becomes more uneven and the parties rent-seek less. Here, integration is optimal. In the in…nitely-repeated version of the model, it is also possible for the parties to enter a relational contract, under which each promises not to engage in rent-seeking. Such a contract must be self-enforcing, for it cannot be enforced by court. It is shown that integration makes the relational contract less easily sustainable, as, due to its cost advantage, the integrating party gains more from deviating than any party under non-integration. Hence, integration is preferred, if relational contracts are not sustainable, while, otherwise, nonintegration may well be preferred. Moreover, it is shown that the model's predictions are in line with many empirical facts on the choice of ownership structures.

Recognition of relational strategy content: insight from the managers’ view

“…Dyer and Singh 1998;Lavie 2006;Kobayashi 2014), obtaining economic rent (e.g. Castaldo 2007;Gürtler 2010), access to resources (e.g. Jap 2001;Hardy et al 2003;Baraldi et al 2012), flexibility (Martínez-Sánchez et al 2009), learning (Mariotti 2012), innovativeness (e.g.…”