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Relational Adaptation Under Reel Authority

Author

Listed:
  • Daniel Barron

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208;)

  • Robert Gibbons

    (MIT Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139;)

  • Ricard Gil

    (Smith School of Business, Queen's University, Kingston, Ontario K7L 2P3, Canada;)

  • Kevin J.Murphy

    (USC Marshall School of Business, University of Southern California, Los Angeles, California 90089)

Abstract

We study relationships between parties who have different preferences about how to tailor decisions to changing circumstances. Our model suggests that relational contracts supported by formal contracts may achieve relational adaptation that improves on adaptation decisions achieved by formal or relational contracts alone. Our empirics consider revenue-sharing contracts between movie distributors and an exhibitor. The exhibitor has discretion about whether and when to show a movie, and the parties frequently renegotiate formal contracts after a movie has finished its run. We document that such ex post renegotiation is consistent with the distributor rewarding the exhibitor for adaptation decisions that improve their joint payoffs.

Suggested Citation

  • Daniel Barron & Robert Gibbons & Ricard Gil & Kevin J.Murphy, 2020. "Relational Adaptation Under Reel Authority," Management Science, INFORMS, vol. 66(5), pages 1868-1889, May.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:5:p:1868-1889
    DOI: 10.1287/mnsc.2019.3292
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    5. Macchiavello, Rocco & Morjaria, Ameet, 2022. "Empirical approaches to trust and relational contracts," International Journal of Industrial Organization, Elsevier, vol. 84(C).
    6. Jordi McKenzie, 2023. "The economics of movies (revisited): A survey of recent literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 480-525, April.
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