Continuing Contracts

Firms’ Use of Outside Contractors: Theory and Evidence

Maija Halonen-Akatwijuka and Oliver Hart

The Journal of Law, Economics, and Organization, 2020, vol. 36, issue 2, 284-313

Abstract: Parties often regulate their relationships through “continuing” contracts that are not fixed term but roll over: employment is a leading example. Our premise is that parties apply fairness when they revise a continuing contract and that prior terms, together with market information, will be a reference point. A continuing contract can reduce (re)negotiation costs relative to a short-term or long-term contract. However, fair bargaining makes adjusting to outside options difficult and may cause inefficient outcomes. An implicit promise of a long-term relationship, as in employment, can improve matters. (JEL D23, D86, K12).

Date: 2020
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Working Paper: Continuing Contracts (2016)
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