Cooperation and Mistrust in Relational Contracts

Arbeitspapier

Work and trade relationships are often governed by relational contracts, in which incentives for cooperative action today stem from the prospective future benefits of the relationship. In this paper, we study how reductions in clarity about the financial consequences of actions, induced by incomplete information about the costs of providing quality, affect relational contracts in buyer-seller relationships. Under incomplete information, payoffs to actions become private information. This can impede the joint understanding of what constitutes cooperative behavior, and may thus inject mistrust into relationships, even if credibility is held constant. Comparing seller-buyer relationships with and without complete information about seller costs in the laboratory, we find that such a lack of clarity has effects on the terms of relational contracts. However, these effects only concern the distribution of rents, and not efficiency.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6045

Classification and Topics

• Classification: Wirtschaft ; Microeconomic Behavior: Underlying Principles ; Transactional Relationships; Contracts and Reputation; Networks ; Firm Objectives, Organization, and Behavior: General
• Subject: relational contracts ; incomplete information ; experiments

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Herz, Holger ; Schmutzler, Armin ; Volk, André
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/145080
• Last update: 10.03.2025, 11:42 AM CET