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Shadow of the contract: how contract structure shapes inter-firm dispute resolution

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  • Lumineau, Fabrice
  • Malhotra, Deepak

Abstract

This paper investigates how contract structure influences inter-firm dispute resolution processes and outcomes by examining a unique dataset consisting of over 150,000 pages of documents relating to 102 business disputes. We find that the level of contract detail affects the type of dispute resolution approach that is adopted when conflict arises, and that different approaches are associated with different costs for resolving the dispute. We also find that the effect of contract choice on dispute resolution approach is moderated by the degree of coordination required in the relationship, and that the effect of dispute approach on costs is moderated by the degree of power asymmetry between the parties. Thus, even after controlling for various attributes of the exchange relationship and the dispute, the choice of contracting structure has important strategic implications.

Suggested Citation

  • Lumineau, Fabrice & Malhotra, Deepak, 2011. "Shadow of the contract: how contract structure shapes inter-firm dispute resolution," MPRA Paper 38359, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38359
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    References listed on IDEAS

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    More about this item

    Keywords

    Contractual Governance; Disputes; Framing; Interest-Based Negotiation and Rights-Based Negotiation; Control and Coordination; Power;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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