Long-term Relationships Governed by Short-term Contracts
AbstractThis 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 InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 78 (1988)
Issue (Month): 3 (June)
Other versions of this item:
- Vincent P. Crawford, 1986. "Long-Term Relationships Governed by Short-Term Contracts," Working Papers 585, Princeton University, Department of Economics, Industrial Relations Section..
- D29 - Microeconomics - - Production and Organizations - - - Other
- D3 - Microeconomics - - Distribution
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