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Long-term Relationships Governed by Short-term Contracts

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  • Crawford, Vincent P

Abstract

This paper studies the effects of contract duration on the incentive to invest in a relationship when its parties are rational and have perfect information, and contracts are complete, ex cept that short-term contracts specify only current-period actions. T hen, short-term contracting distorts investment decisions only when t he efficient plan involves mainly sunk-cost investment and the relati onship plays a consumption-smoothing role. There is a general, but no t universal, tendency to underinvest. Copyright 1988 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 78 (1988)
Issue (Month): 3 (June)
Pages: 485-99

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Handle: RePEc:aea:aecrev:v:78:y:1988:i:3:p:485-99

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Cited by:
  1. Zhu, Tian, 2000. "Holdups, simple contracts and information acquisition," Journal of Economic Behavior & Organization, Elsevier, vol. 42(4), pages 549-560, August.
  2. Fouarge Didier & Grip Andries de & Smits Wendy & Vries Robert de, 2011. "Flexible contracts and human capital investments," ROA Research Memorandum 013, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  3. Sergei Guriev & Dmitriy Kvasov, 2005. "Contracting on Time," American Economic Review, American Economic Association, vol. 95(5), pages 1369-1385, December.
  4. MacLeod, W.B. & Malcomson, J.M., 1989. "Efficient specific investments, incomplete contracts, and the role of market alternatives," Discussion Paper 1989-46, Tilburg University, Center for Economic Research.
  5. Hvide, Hans K. & Kristiansen, Eirik G., 2006. "Management of Knowledge Workers," Discussion Papers 2006/7, Department of Business and Management Science, Norwegian School of Economics.
  6. Donni, Olivier, 2014. "Over-investment in marriage-specific capital," Mathematical Social Sciences, Elsevier, vol. 67(C), pages 34-43.
  7. Skaperdas, Stergios & Syropoulos, Constantinos, 1996. "Can the shadow of the future harm cooperation?," Journal of Economic Behavior & Organization, Elsevier, vol. 29(3), pages 355-372, May.
  8. Olivier Donni, 2012. "Overinvestment in Marriage-Specific Capital," THEMA Working Papers 2012-29, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  9. Jonker,N. & Grip,A.,de, 1999. "Do employees with Flexible Contracts receive less Training?," ROA Research Memorandum 001, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  10. de Meza, David & Lockwood, Ben, 2004. "Too Much Investment : A Problem Of Coordination Failure," The Warwick Economics Research Paper Series (TWERPS) 703, University of Warwick, Department of Economics.
  11. Zylbersztajn, Decio & Lazzarini, Sergio G., 2005. "On the survival of contracts: assessing the stability of technology licensing agreements in the Brazilian seed industry," Journal of Economic Behavior & Organization, Elsevier, vol. 56(1), pages 103-120, January.
  12. James A. Roumasset, 1993. "The Nature of the Agricultural Firm," Working Papers 199317, University of Hawaii at Manoa, Department of Economics.
  13. Marin, Dalia, 1990. "Tying in International Trade," Munich Reprints in Economics 3114, University of Munich, Department of Economics.
  14. repec:hal:wpaper:halshs-00564900 is not listed on IDEAS
  15. Bac, Mehmet, 2001. "To invest or screen efficiently: a potential conflict in relationships governed by incomplete contracts," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 567-588, March.
  16. Darlene C. Chisholm, 1993. "Asset Specificity and Long-Term Contracts: The Case of the Motion-Pictures Industry," Eastern Economic Journal, Eastern Economic Association, vol. 19(2), pages 143-155, Spring.

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