Relational Adaptation Under Reel Authority

Abstract

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.

Relational Contracting in Developed Economies: Lessons From Slot Exchanges in the US Airline Industry

“…via outsourcing or vertical integration). Going beyond the airline industry, the current literature has provided evidence consistent with the importance of adaptation and relational contracting in movie exhibition contracts (Barron et al ., ), auto dealerships (Arruñada et al ., ; Zanarone, ) and highway procurement contracts (Gil and Marion, ). Creative approaches to measuring the depth and value of relationships in the spirit of the one discussed here may be used to better understand the interaction between formal and informal contracts in these contexts.…”

Adaptation, adjudication, and private ordering: Contractual Relations through the Williamson Lens

“…Subsequent contracting research emphasizing the role of price in reducing the incidence of post-agreement conflict includes Goldberg (1985) and Goldberg and Erickson (1987); Masten (1988); Klein (1992Klein ( , 1996; and Hart (2009). Empirical studies of natural gas contracts (Crocker and Masten, 1991), employment compensation (Oyer, 2004), truck driver compensation (Masten, 2009), and movie distribution (Barron et al, 2020), among others, have offered evidence consistent with the goal of economizing on ex post adaptation costs.…”

Relational Contracting, Negotiation, and External Enforcement

“…They analyze how governance structures (allocations of control) can facilitate relational contracts that improve on spot transactions in settings where such transactions would produce inefficient adaptation to changing circumstances. Relatedly, Barron, Gibbons, Gil, and Murphy (2015) analyze self-enforced agreements that facilitate efficient adaptation (they call it relational adaptation), and show how these agreements, combined with an external contract, induce state-dependent decision-making that improves upon the expected payoffs under either external contracting or relational contracting alone. Their theoretical model assumes stationarity of equilibrium strategies and Nash reversion (permanent punishment following 27 Iossa and Spagnolo (2011) examine a repeated principal-agent model in which, in each period, players have the option to trigger penalties specified by the external contract.…”