Contracting Costs, Inflation, and Relative Price Variability

Patricia Reagan and René Stulz

Journal of Money, Credit and Banking, 1993, vol. 25, issue 3, 585-601

Abstract: This paper provides an analysis of the effect of relative price uncertainty and price level uncertainty on contracting costs. The paper shows that, as relative price uncertainty or price level uncertainty increase, contracts where performance is assured through the posting of a bond become more advantageous than contracts that rely on reputation. Increases in relative price and price level uncertainty make contracting more expensive by increasing the payoff from defaulting on long-term contracts when unfavorable realizations occur. As uncertainty increases, long-term contracting becomes less frequent and reputation plays a smaller role in contracting. Copyright 1993 by Ohio State University Press.

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-2879%2819930 ... 0.CO%3B2-V&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Journal Article: Contracting costs, inflation, and relative price variability (1993)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:25:y:1993:i:3:p:585-601

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().