What do contracts do to facilitate relationships?

Hideshi Itoh

The Japanese Economic Review, 2023, vol. 74, issue 3, No 2, 333-354

Abstract: Abstract I demonstrate that transacting parties may expend resources on ex ante contracting, which may not be legally enforceable, to help build and maintain their long-term relationships. I first introduce three legal concepts, namely scaffolding, managerial provisions, and formal relational contracts, which highlight the recent trend towards more detailed contracts. These concepts indicate that the role of detailed contracts is not to improve judicial contract enforcement, but to enhance clarity and alignment of interests and to reduce renegotiation costs, which ultimately support the parties’ relationships. I then proceed to present and analyze a simple reduced-form model, which demonstrates that the parties’ efforts for ex ante contracting are not necessarily monotonic with the level of alignment of their interests. Furthermore, I discuss recent contracting practices in Japan and attempt to provide an explanation for the lack of change observed in these practices.

Keywords: Ex ante contracting; Costly contracting; Relational contracting; Scaffolding; Managerial provisions; Formal relational contracts; Long-term relationships (search for similar items in EconPapers)
JEL-codes: D86 K12 L14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s42973-023-00132-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
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:spr:jecrev:v:74:y:2023:i:3:d:10.1007_s42973-023-00132-7

Ordering information: This journal article can be ordered from
https://www.springer.com/journal/42973

DOI: 10.1007/s42973-023-00132-7

Access Statistics for this article

The Japanese Economic Review is currently edited by Michihiro Kandori

More articles in The Japanese Economic Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().