The moderating effect of interdependence on contracts in achieving equity versus efficiency in interfirm relationships

Abstract

By associating the functions of contracts as safeguarding with equity or coordination with efficiency, this study explores the moderating effects of interdependence, operationalized as joint dependence and dependence asymmetry, on the relative salience and effectiveness of contracts in achieving equity versus efficiency in interfirm relationships. Analyzing the data from a sample of 355 retailers, the study finds that a higher contract complexity generates (1) steady gains in equity and increasing gains in efficiency as joint dependence strengthens and dependence asymmetry remains constant, suggesting a growing salience of the coordination function; and (2) increasing gains in equity and steady gains in efficiency as dependence asymmetry enlarges and joint dependence remains constant, reflecting a growing salience of the safeguarding function. By showing how interdependence moderates the relative effectiveness of contracts in achieving equity versus efficiency, the study enriches the literature on the complex and contingent roles of contracts in governing interfirm relationships.