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Contracting between Firms: Empirical Evidence

Author

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  • Rajkamal Iyer

    (Imperial College London)

  • Zacharias Sautner

    (Frankfurt School of Finance & Management)

Abstract

We analyze contracts between a large buyer and her suppliers. We find that contracts with critical product suppliers contain more clauses that address moral hazard, primarily through monitoring. If holdup concerns are larger, there are more contractual protections against it. Over time, contracts with the same supplier include additional provisions that address moral hazard through monitoring. This dynamic effect is strongest for service contracts, where observability and verifiability are initially lower. Our findings indicate that contracts become more complete over time and provide support to incomplete-contracting models that argue that contracts become more complete as contracting costs decrease.

Suggested Citation

  • Rajkamal Iyer & Zacharias Sautner, 2018. "Contracting between Firms: Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 100(1), pages 92-104, March.
    • Handle: RePEc:tpr:restat:v:100:y:2018:i:1:p:92-104
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    Cited by:

    1. Tang, Shufen & Zheng, Yuqing & Li, Taiping & Zhou, Li, 2021. "The Hold-up Problem in China’s Broiler Industry: Empirical Evidence from Jiangsu Province," 2021 ASAE 10th International Conference (Virtual), January 11-13, Beijing, China 329410, Asian Society of Agricultural Economists (ASAE).
    2. Federica Di Marcantonio & Pavel Ciaian & Jan Fałkowski, 2020. "Contracting and Farmers’ Perception of Unfair Trading Practices in the EU Dairy Sector," Journal of Agricultural Economics, Wiley Blackwell, vol. 71(3), pages 877-903, September.
    3. Zhang, Yanming & Huo, Baofeng & Haney, Mark H. & Kang, Mingu, 2022. "The effect of buyer digital capability advantage on supplier unethical behavior: A moderated mediation model of relationship transparency and relational capital," International Journal of Production Economics, Elsevier, vol. 253(C).
    4. Shufen Tang & Yuqing Zheng & Taiping Li & Li Zhou, 2021. "The hold‐up problem in China's broiler industry: Empirical evidence from Jiangsu Province," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(4), pages 539-554, December.

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