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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- Zhu, Tian, 2000. "Holdups, simple contracts and information acquisition," Journal of Economic Behavior & Organization, Elsevier, vol. 42(4), pages 549-560, August.
- Olivier Donni, 2012. "Overinvestment in Marriage-Specific Capital," THEMA Working Papers 2012-29, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- 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.
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- 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.
- Hvide, Hans K. & Kristiansen, Eirik G., 2006.
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2006/7, Department of Finance and Management Science, Norwegian School of Economics.
- 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.
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- Jonker,N. & Grip,A.,de, 1999. "Do employees with Flexible Contracts receive less Training?," Research Memoranda 001, Maastricht : ROA, Research Centre for Education and the Labour Market.
- 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.
- Sergei Guriev & Dmitriy Kvasov, 2005.
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w0059, Center for Economic and Financial Research (CEFIR).
- James A. Roumasset, 1993.
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