Model Of Relational Contracts Research Articles

Uncertainty, Investment and Productivity with Relational Contracts

Abstract With relational contracts, increased uncertainty with no change in factor prices is shown to reduce investment in the long run even if the parties are risk-neutral. This contrasts with models based on the impact of financial risk on the cost of capital and on the option value arising from irreversible investment. For the latter, Bloom et al. (Econometrica, 2018) find that a negative first-moment shock, in addition to increased uncertainty, best matches the data. This paper develops a relational contract model to demonstrate the impact of uncertainty on investment, depending on whether investment is general or specific. It then uses a specification calibrated with parameters from Bloom et al. (Econometrica, 2018) to show that this model can generate effects on productivity and investment of the magnitude of the negative aggregate shock in that paper purely with an increase in uncertainty.

Effect of Contract Farming on the Income and Risk of Pistachio and Saffron Producers in Iran

Contract farming is among the institutional arrangements essential for agricultural products. In most cases, these contracts lead to increased incomes and welfare of farmers. However, this type of business has not been taken seriously in Iran. This study aimed to analyze the effect of contract farming on the income and risk of the farmer’s income. To this end, pistachio and saffron farmers in the Yazd Province, in central Iran, were considered in the harvest year of 2017-2018. We divided the farmers into three homogeneous groups, each with different input consumption levels and production per hectare. We calibrated the cost functions of representative farmers in each group. These functions were employed to develop an ideal formal contract model and relational contract model. According to the results, formal contracts and relational contracts increased income and relational contracts reduced the risk to farmers when they were compatible with the incentive constraints of the farmer. Policymakers should provide favorable conditions for the development of contract farming. For instance, they can present contract farming to farmers and encourage agricultural enterprises to participate in contracts by facilitating access to credit and other investment incentives.

Incentive mechanism on customer knowledge collaborative acquisition with relational contract under double-sided moral hazard in big data context

In the big data context, the customer data are distributed out of the enterprise boundary. It’s the key to maintain competitive advantage that applying the customer knowledge acquisition to the enterprise innovation. From the perspective of the supply chain, there is complementarity of customer knowledge for the manufacturer and the retailer. Sharing the collaborative acquisition of customer knowledge can improve the efficiency of both sides, and even of the whole system. However, since the imbalance of the information between both sides and the imbalance aggravated because of the pending verification of customer big data value, result in speculation behaviors that called bilateral moral hazard. Reasonable design of synergy incentive contract is an important way to solve bilateral moral hazard in customer knowledge collaborative acquisition. As the big data customer knowledge needs to be examined, the relational contract model of customer acquisition knowledge is established and contract analysis of the incentive effects between the formal contract and relational contract is made. Consequently, the incentive of formal contract will result in system profit loss, while relational contract incentive has positive inspiration for collaboration between the manufacturer and the retailer, which can improve the efficiency of the acquisition. In the process, when the discount rate is large enough to reach a certain threshold, the optimal system revenue can be achieved through the relational contract.

Employment Protection Legislation and Cooperation

AbstractI argue how cooperative behaviors are influenced by employment protection legislation (EPL), which is viewed in terms of two types of firing costs: administrative costs (such as notification procedures) and monetary transfers (such as severance pay). I focus on the minimum discount factor for mutual cooperation under trigger strategies in a relational contract model, where a firm has two payment options: a formal wage and an informal bonus. It will be shown that administrative costs enhance cooperation when they are low, whereas monetary transfers dampen cooperation when they are high. In addition, I show under what wage scheme cooperation is most likely self‐enforced.

Motivate and select: Relational contracts with persistent types

We develop a model of relational contracts with moral hazard and asymmetric persistent information about an employee's type. We find that the form of the optimal contract depends on the job characteristics and the distribution of employees' talent. Bonus contracts are more likely to be adopted in complex jobs and when high talent is not too common or too rare. Firms with “normal” jobs are more likely to adopt termination contracts. In labor market equilibrium, different contracts may be adopted by ex ante identical firms. Hence, we offer an explanation for the coexistence of different employment systems within the same industry.

Relational incentive contracts with productivity shocks

This paper extends Levin's (2003) relational contract model by having not only the agent's cost of effort (agent's type), but also the value of that effort to the principal (principal's type) subject to i.i.d. shocks. When optimal effort is fully pooled across agent types for multiple principal types, it is also pooled across those principal types. When optimal effort separates some agent types for multiple principal types, efforts of those agent types may be separated across principal types. But then, somewhat perversely, some agent type's effort is decreasing in the principal's value of effort. When agent type is uniformly distributed, that applies to agent types with lower effort cost, so reducing the difference in effort between low and high effort cost types. This result extends to the principal's type being observed only by the principal if the marginal cost of effort to the agent is sufficiently convex.

Motivate and Select: Relational Contracts with Persistent Types

We develop a model of relational contracts with moral hazard and asymmetric persistent information about an employee's type. We find that the form of the optimal contract depends on the job characteristics and the distribution of employees' talent. Bonus contracts are more likely to be adopted in complex jobs and when high talent is not too common or too rare. Firms with 'normal' jobs are more likely to adopt termination contracts. In labor market equilibrium, different contracts may be adopted by ex ante identical firms. Hence, we offer an explanation for the co-existence of different employment systems within the same industry.

Influence behaviors and employees’ reactions: An empirical test among six societies based on a transactional–relational contract model

Organizational and task commitment are central drivers of firm performance as they affect employees’ willingness to exert effort for the organization. This paper argues that supervisors who consistently use socio-emotional and supportive influence strategies are likely to enhance subordinates’ immediate commitment to the tasks as well as their psychological attachment to the organization. Drawing on the transactional–relational contracts framework, we develop and empirically examine the effects of supervisors’ influence behaviors on two types of commitment. Data collected from 1150 respondents from China, Hong Kong, Taiwan, Germany, United States and Brazil provided support for the positive relationship between the persuasive influence strategy and both immediate task and organizational commitment. Exploratory analyses of the cultural differences in our sample reveal differences in assertive and relationship-based individual tactics. We thus identified potentially universally endorsed as well as culturally contingent influence tactics in predicting the two types of commitment.

Putting all one's eggs in one basket: Relational contracts and the management of local public services

French municipalities often contract out the provision of local public services to private companies, and regularly choose the same private operator for a range of different services. We develop a model of relational contracts that shows how this strategy may lead to better performance at lower cost for public authorities. We test the implication of our model using an original database of the contractual choices made by 5000 French local public authorities in the years 2001, 2004 and 2008.

Board independence and competence

This paper analyzes board independence and competence as distinct, but inextricably linked aspects of board effectiveness. Competent directors add shareholder value because they have better information about the quality of projects. While a CEO cares about shareholder value, he also wants his board to behave loyally to him by agreeing to projects that give him private benefits. Because many aspects of the CEO-board relationship are not contractible, the paper studies a model of relational contracts, a tool that has hitherto been rarely used in work on corporate governance. The analysis reveals a tradeoff: Inefficient loyalty is endogenously easier to obtain from a less competent board. The implied conflict of interest between shareholders and the CEO is particularly pronounced in difficult times. Fortunately, the tradeoff does not arise with respect to efficient loyalty. Several empirical predictions flow from the model, some of which explain existing empirical facts while others are new.

A socio-legal and economic analysis of contracting in the NHS internal market using a case study of contracting for district nursing

The introduction of an internal market in the National Health Service (NHS) in the United Kingdom necessitated the use of contracts between purchasers and providers. Little thought was given to the nature of these contracts by policy makers, who appeared to assume that the contracts could conform to the classical, complete model. This paper uses socio-legal and economic theories of contract (which provide an alternative model of relational contracts, in contrast to classical contracts) to explore how realistic that assumption was. An analysis of the institutional context in which the contracts were made is provided, including a legal analysis of the relevant legislation. Contracting by health authorities and GP fundholders is examined, using the results of a recent case study of contracting for district nursing services carried out in a health authority in Greater London. The results show that classical contracting is an inappropriate model for NHS contracts, but that relational contracting is not an entirely appropriate model either. Contracting was found to have increased the accountability of providers in respect of some financial matters, but not in respect of the quality of district nursing services. There are negative implications for the use of contracting in publicly financed health services—hierarchies may be more efficient (as lower transaction costs can be incurred) and possibly more effective in improving quality of care.