Relational Contracts in Competitive Labour Markets

Board, Simon; Meyer-ter-Vehn, Moritz

doi:10.1093/restud/rdu036

Cited by 36 publications

(30 citation statements)

References 53 publications

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“…Numerous relational contracting models focus on environments with symmetric information (see, for example, MacLeod and Malcomson 1989, 1998, and Board and Meyer-Ter-Vehn 2015. Asymmetric information has also been incorporated into relational contracting.…”

Section: B Relational Contractingmentioning

confidence: 99%

Honest Equilibria in Reputation Games: The Role of Time Preferences

Kartal

2018

American Economic Journal: Microeconomics

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Section: B Relational Contractingmentioning

confidence: 99%

Honest Equilibria in Reputation Games: The Role of Time Preferences

Kartal

2018

American Economic Journal: Microeconomics

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“…In particular, and equivalently to (14), the expected payoff when engaging in search must be higher than the continuation payoff with the initial high-cost supplier, i.e.,…”

Section: B Preventing "Cheat-and-run"mentioning

confidence: 99%

Relational contracts and supplier turnover in the global economy

Defever

Fischer

Suedekum

2016

Journal of International Economics

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Headquarters and their specialized component suppliers have a vital interest in establishing long-term collaborations. When formal contracts are not enforceable, such efficiency enhancing cooperation's can be established via informal agreements, but relational contracts have been largely ignored in the literature on the international organization of value chains. In this paper, we develop a dynamic property rights model of global sourcing. A domestic headquarter collaborates with a foreign input supplier and makes two decisions in every period: i) whether to engage in a costly search for a better partner, and ii) whether to make a non-binding offer to overcome hold-up problems. Our key result is that the possibility to switch partners crucially affects the contractual nature of buyer-supplier relationships. In particular, some patient firms do not immediately establish a relational contract, but only when they decide to stop searching and thus launch a long-term collaboration with their supplier. From our model, we develop an instrumental variable estimation strategy that we apply using transaction-level data of fresh Chinese exporters to the US. We obtain empirical evidence in line with the theoretical prediction of a positive causal effect of match durations on relational contracting.

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“…In addition, the observable but non-verifiable assumption often underpins second-best approaches to relational-contracting models in organizational economics (MacLeod & Malcomson 1989;Baker, Gibbons, & Murphy 1994Levin 2003) and to efficiency-wage models of motivation (MacLeod & Malcomson 1998;Board & Meyer-ter-Vehn 2014) where signals of past behavior are mutually observable (so that players can coordinate on punishment and rewards) but not verifiable by third parties.…”

Section: Introductionmentioning

confidence: 99%

Handing Out Guns at a Knife Fight: Behavioral Limitations of Subgame-Perfect Implementation

2014

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe assumption that payoff-relevant information is observable but not verifiable is important for many core results in contract, organizational and institutional economics. However, subgame-perfect implementation (SPI) mechanisms -which are based on offequilibrium arbitration clauses that impose fines for lying and the inappropriate use of arbitration -can be used to render payoff-relevant observable information verifiable. Thus, if SPI mechanisms work as predicted they undermine the foundations of important economic results based on the observable but non-verifiable assumption. Empirical evidence on the effectiveness of SPI mechanisms is, however, scarce. In this paper we show experimentally that SPI mechanisms have severe behavioral limitations. They induce retaliation against legitimate uses of arbitration and thus make the parties reluctant to trigger arbitration. The inconsistent use of arbitration eliminates the incentives to take first-best actions and leads to costly disagreements such that individuals -if given the choice -opt out of the mechanism in the majority of the cases. Incentive compatible redesigns of the mechanism solve some of these problems but generate new ones such that the overall performance of the redesigned mechanisms remains low. Our results indicate that there is little hope for SPI mechanisms to solve verifiability problems unless they are made retaliation-proof and, more generally, robust to other-regarding preferences.

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Relational Contracts in Competitive Labour Markets

Cited by 36 publications

References 53 publications

Honest Equilibria in Reputation Games: The Role of Time Preferences

Honest Equilibria in Reputation Games: The Role of Time Preferences

Relational contracts and supplier turnover in the global economy

Handing Out Guns at a Knife Fight: Behavioral Limitations of Subgame-Perfect Implementation

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