When to sign a contract: The timing of contractual commitments

Abstract

This paper discusses theoretical propositions about the timing of contractual commitments. It is argued that technological uncertainty and demand uncertainty lead to late signing of contracts, whereas higher specificity of existing assets, higher complexity of search and negotiations, and higher product complexity lead to earlier contractual commitments. The need for new transaction specific investments characterized by time compression diseconomies also leads to earlier contractual commitments. Implications for contract signing, contract renewal, termination notice, and framework contracts are discussed.