Contractual Design and Functions - Evidence from Service Contracts in the European Air Transport Industry

Contracts within governance classes, e.g., alliances or supply chain contracts, display a great degree of variation in contractual design. In this paper, we explore (i) the alignment between provisions in functional classes and the underlying transaction attributes, and (ii) the impact of learning on transaction costs (via standardization of contract provisions). Drawing on a sample of 42 service contracts in the European air transport industry, we show that asset specificity has a dominant impact on the observed variation in all the provisions/attachments analyzed. The results do not support the proposition that individual transaction attributes drive the design of provisions in distinct functional dimensions (safeguarding, coordination, and contingency adaptability function). However, they demonstrate that the provision’s function determines whether standardization occurs in ‘learning arrangements’ at the industry level or at the firm level.