Learning Process and Contract Adaptation with Quality Uncertainty: Some Paradoxes in Retailer-Producer Relationships

The optimal level of formalisation of contracts and their dynamic is at stake in the economic literature on the optimum design of ex post renegotiation with third party enforcement. Another theoretical interpretation is that contract adaptations may also reflect mutual learning process between contractors. Why transactors write explicit contract that they know cannot be court enforced? The central idea is that explicit contract terms makes it clearer to the transactors what has been agreed upon, thus are decreasing the cost of private enforcement sanctions (Klein, 1996). Empirical evidences are provided by the diachronic analysis of the full set of tri-partite contracts between one of the top-ten french large retailer and its beef suppliers before and after the BSE crisis (period 1993-1999). The analysis emphasizes also the role of this increased codification of supply contracts with a progressive change in the internal retailer's organization, i.e. increased centralization of decision and supervision mechanisms. Contract design and organizational choices are then strongly interrelated.