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Relationship Building: Conflict and Project Choice over Time

Author

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  • Marina Halac

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).

Suggested Citation

  • Marina Halac, 2014. "Relationship Building: Conflict and Project Choice over Time," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(4), pages 683-708.
    • Handle: RePEc:oup:jleorg:v:30:y:2014:i:4:p:683-708.
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    File URL: http://hdl.handle.net/10.1093/jleo/ewt009
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    Citations

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    Cited by:

    1. Christian Fischer‐Thöne, 2023. "Optimal Payment Contracts In Trade Relationships," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1649-1683, November.
    2. Beata Grzyl & Magdalena Apollo & Adam Kristowski, 2019. "Application of Game Theory to Conflict Management in a Construction Contract," Sustainability, MDPI, vol. 11(7), pages 1-12, April.
    3. Jin Li & Niko Matouschek & Michael Powell, 2017. "Power Dynamics in Organizations," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 217-241, February.
    4. Fischer, Christian, 2020. "Optimal payment contracts in trade relationships," MPRA Paper 101956, University Library of Munich, Germany.
    5. Englmaier, Florian & Segal, Carmit, 2016. "Morale, Relationships, and Wages: An Experimental Study," VfS Annual Conference 2016 (Augsburg): Demographic Change 145662, Verein für Socialpolitik / German Economic Association.
    6. Luis Garicano & Luis Rayo, 2016. "Why Organizations Fail: Models and Cases," Journal of Economic Literature, American Economic Association, vol. 54(1), pages 137-192, March.
    7. Jean Guillaume Forand & Jan Zapal, 2017. "The Demand and Supply of Favours in Dynamic Relationships," Working Papers 1705, University of Waterloo, Department of Economics, revised Sep 2017.
    8. Jin Li & Arijit Mukherjee & Luis Vasconcelos, 2023. "What Makes Agility Fragile? A Dynamic Theory of Organizational Rigidity," Management Science, INFORMS, vol. 69(6), pages 3578-3601, June.

    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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