Cooperation and mistrust in relational contracts

Holger Herz, Armin Schmutzler and André Volk

Journal of Economic Behavior & Organization, 2019, vol. 166, issue C, 366-380

Abstract: Work and trade relationships are often governed by relational contracts, in which incentives for cooperative action today stem from the prospective future benefits of the relationship. In this paper, we study how a lack of hard information about the costs of providing quality, and therefore about the financial consequences of actions, affects relational contracts in buyer-seller relationships. The absence of verifiable information can impede the joint understanding of what constitutes cooperative behavior, and may thus inject mistrust into relationships. Comparing seller-buyer relationships with hard (verifiable) and soft (non-verifiable) information about seller costs in the laboratory, we find that soft information affects the terms of relational contracts. However, the party negatively affected by these adjustments does not reciprocate with efficiency-reducing actions. We therefore find that asymmetric information only affects the distribution of rents, and not efficiency.

Keywords: Relational contracts; Non-Verifiable information; Experiments (search for similar items in EconPapers)
JEL-codes: D01 D03 L14 L20 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Cooperation and Mistrust in Relational Contracts (2016)
Working Paper: Cooperation and Mistrust in Relational Contracts (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:166:y:2019:i:c:p:366-380

DOI: 10.1016/j.jebo.2019.07.007

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