Hybrid contracting in repeated interactions

Bernhard Ganglmair (), Julian Klix and Dongsoo Shin

No 25-046, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Many business relationships begin with informal interactions and later transition to formal contracts. Using a repeated-games model with a finite horizon, we show that this hybrid-contracting approach can both prolong cooperation (intensive margin) and enable it across a broader range of settings (extensive margin). We model the contract as a "smooth-landing contract" that limits actions only near the end of the relationship. We show that this flexible design supports early cooperation and outperforms rigid contracts. Our findings are robust to changes in contracting costs and timing, with optimal contract length balancing profitability and implementability.

Keywords: cooperation; hybrid contracting; relational contracts; repeated games; strategic alliances (search for similar items in EconPapers)
JEL-codes: C73 D86 K12 L14 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-gth and nep-mic
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https://www.econstor.eu/bitstream/10419/327114/1/1936696762.pdf (application/pdf)

Related works:
Working Paper: Hybrid Contracting in Repeated Interactions (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:327114

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