The influence of inertia on contract design: contingency planning in information technology service contracts

Kyle J. Mayer and Janet Bercovitz
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Kyle J. Mayer: University of Southern California, Los Angeles, CA, USA, Postal: University of Southern California, Los Angeles, CA, USA
Janet Bercovitz: University of Illinois at Urbana-Champaign, Champaign, IL, USA, Postal: University of Illinois at Urbana-Champaign, Champaign, IL, USA

Managerial and Decision Economics, 2008, vol. 29, issue 2-3, pages 149-163

Abstract: This paper examines whether the prior relationship between two firms produces an inertial drag that influences contracts used for subsequent exchanges. Using data from the information technology services industry, we examine whether inertia develops during the relationship between firms in how they plan for contingencies. While attributes of the current exchange do play a role, we find that the prior relationship between the firms has a constricting effect on future contracts. Prior relationships can create what we call interorganizational inertia, which leads firms to use the same level of contingency planning in current exchanges that they used in prior contracts. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2008
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Persistent link: http://EconPapers.repec.org/RePEc:wly:mgtdec:v:29:y:2008:i:2-3:p:149-163

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