Toward a social fitness perspective on contract design: Contract legitimacy and influence strategy

Abstract

The effectiveness of contracts in terms of cooperative efficiency and relational outcomes in interorganizational relationships has become critical in today's volatile markets. However, extant research on the effect of contracts on trust has found inconsistent results, possibility because of its overwhelming focus on an economic fitness perspective at the expense of a social fitness perspective. Drawing insights from institutional theory, we focus on legitimacy building in interfirm contract design, investigate how contract legitimacies (i.e., regulative, normative, and cognitive) influence the effectiveness of interfirm contract design, and further explore the moderating effects of influence strategies that are applied in the process of contract implementation. Using longitudinal field survey data and archival data, this study finds that the three types of contract legitimacy play different roles in influencing compliance and trust and that noncoercive influence strategies can improve the effectiveness of regulative and normative legitimacy better than coercive influence strategies on trust. The findings offer new theoretical and managerial insights into the role of institutional environments in the effectiveness of contract design in manufacturer–distributor relationships.