We study mechanism design under endogenously incomplete commitment as it arises in contracting with escape clauses. An escape clause permits the agent to end a contractual relationship under specified circumstances, after which the principal can offer an ex-post contract. Escape clauses are...

Firm integration is fundamentally shaped by contractual frictions. But do better contracting institutions, reducing these frictions, induce firms to be more or less deeply integrated? To address this question, this paper exploits unique micro data on ownership shares across more than 200,000...

Standards often require the use of patented technologies. Holders of standard-essential patents (SEPs) typically commit to make their patents available on "fair, reasonable and non-discriminatory" (FRAND) terms. National competition authorities increasingly intervene against perceived FRAND...

Trade credit is one of the most important sources of short-term finance in buyer-seller transactions.This paper studies a seller's trade credit provision decision in a situation of repeated contracting withincomplete information over the buyer's ability and willingness of payment compliance when...

To quantify contracting distortions in a real‐world market, we develop and structurally estimate a model of contracting under payoff uncertainty in the south Indian groundwater economy. Uncertainty arises from unpredictable fluctuations in groundwater supply during the agricultural dry season....

Supply chains today routinely use third parties for many strategic activities, such as manufacturing, R&D, or software development. These activities often include relationship-specific investment on the part of the vendor, while final outcomes can be uncertain. Therefore, writing complete...

This paper explores how a relational contract establishes a norm of reciprocity and how such a norm shapes the provision of informal incentives. Developing a model of a long-term employment relationship, I show that generous upfront wages that activate the norm of reciprocity are more important...

Based on data from a comprehensive benchmarking study on buyer-supplier relationships in the German automotive industry, we show that more trust in a relationship is associated with higher idiosyncratic investment by suppliers and better part quality - but also with more competition among...

Effective organizations are able not only to coordinate their members on efficient strategies but also to adapt members' strategies to unforeseen change in an efficient manner. We explore whether part of organizational culture - namely, relational contracts that facilitate both coordination and...

We consider a public-private partnership in an infrastructure project, which requires specialised expertise during the construction stage for the infrastructure to operationalise. This entails that, after an investment is made to begin building the infrastructure, its construction is completed...

This paper explores the optimal provision of dynamic incentives for employees with reciprocal preferences. Building on the presumption that a relational contract can establish a norm of reciprocity, I show that generous upfront wages that activate an employee’s reciprocal preferences are more...

We analyze the problem of a buyer who purchases a long-term project from one of several suppliers. A changing state of the world influences the costs of the suppliers. Complete contracts conditioning on all future realizations of the state are infeasible. We show that contractual incompleteness...

Two parties sign a contract but before they fully perform they modify the contract. Should courts enforce the modified agreement? The modification may enable efficient trade in response to changed circumstances, or one party may have made an efficient relationship-specific investment and then...

Cover -- 1. Introduction: The case for an economic theory of international regimes -- 1.1. International politics from a political economy perspective: beyond the neo-realist/neo-institutionalist debate -- 1.2. Why cooperate in a system of anarchy? -- 1.3. What constitutes an international...

What are the calculations of states in the international system when it comes to cooperation in the area of prohibition? By shifting the focus from normative policy outcomes to the importance of relationship-specific negotiation incentives, this work helps to explain the emergence and stability...

Inducing firms to make specialized investments through bilateral contracts can be challenging because of potential hold- up problems. Such contracting difficulties have long been argued to be an important reason for acquisitions. To evaluate the extent to which this motivation leads to mergers,...

This paper develops a simple general equilibrium model which establishes a link between the patience of economic agents and the well-being of nations. We show that firms in long-term oriented countries can mitigate hold-up inefficiencies by engaging with their suppliers in relational contracting...

We study how a preferential trade agreement (PTA) affects international sourcing decisions, aggregate productivity and welfare under incomplete contracting and endogenous matching. Contract incompleteness implies underinvestment. That inefficiency is mitigated by a PTA, because the agreement...

We investigate how payoff-irrelevant terms can negatively impact relational contracts. In a lab experiment we compare two economically equivalent contracts - a fixed-term renewable and an open-ended at-will contract. Each contract provides partners with full flexibility regarding the length and...

In this study we use import penetration as a proxy for foreign competition in order to empirically analyze (1) the impact of foreign competition on managerial compensation, (2) differences in the impact between Germany and the U.S and (3) whether the impact of import penetration is driven by...

The corporate finance literature documents that managers tend to over-invest in their companies. A number of theoretical contributions have aimed at explaining this stylized fact, most of them focusing on a fundamental agency problem between shareholders and managers. The present paper shows...

This paper develops and applies a test of the property rights theory of the firm in the context of global input sourcing. We use the model by Pol Antràs and Elhanan Helpman, "Global Sourcing," Journal of Political Economy, 112:3 (2004), 552-80, to derive a new prediction regarding how the...