Relationship Building: Conflict and Project Choice over Time

Marina Halac

The Journal of Law, Economics, and Organization, 2014, vol. 30, issue 4, 683-708

Abstract: The question of how to develop a relationship is central to business and management. This is especially true when the environment is characterized by informational asymmetries and subjectivity, as for example in management consulting. This article presents a model of relationship building inspired by the consultant–client relationship. Consistent with the evidence, it shows that consultants and clients optimally start with low-risk, low-return projects, and move up to high-risk, high-return projects over time as they accumulate relationship capital. The probability of conflict and breakup is decreasing over the course of the relationship, but may jump when a higher-risk project is adopted (JEL C73, D82, L14).

Date: 2014
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