IDEAS home Printed from https://ideas.repec.org/a/eej/eeconj/v24y1998i4p475-493.html
   My bibliography  Save this article

Asset Specificity, Long-Term Contracts, and the Good Faith Requirement

Author

Listed:
  • Donald Vandegrift

    (College of New Jersey)

Abstract

This paper analyzes the effect of court intervention on the choice between contracts and vertical integration when a specialized investment is required for least-cost production. It shows that: 1) differences in subjective probability estimates of the future bargaining power may cause the parties to contract when they should integrate and vice versa; 2) court intervention in the form of the good faith requirement improves efficiency by reducing the degree to which a shift in bargaining power allows a contractor to take a larger share of the gains to the contract and by compensating for differences in expected bargaining power; and 3) as the average difference between the buyer's and seller's estimates of future bargaining power increase, the net benefits of the good faith requirement rise.

Suggested Citation

  • Donald Vandegrift, 1998. "Asset Specificity, Long-Term Contracts, and the Good Faith Requirement," Eastern Economic Journal, Eastern Economic Association, vol. 24(4), pages 475-493, Fall.
    • Handle: RePEc:eej:eeconj:v:24:y:1998:i:4:p:475-493
    as

    Download full text from publisher

    File URL: http://web.holycross.edu/RePEc/eej/Archive/eeconj/Volume24/V24N4P475_493.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Per Erik Eriksson, 2006. "Procurement and Governance Management ? Development of a Conceptual Procurement Model Based on Different Types of Control," management revue - Socio-Economic Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 17(1), pages 30-49.

    More about this item

    Keywords

    Contracts; Vertical Integration;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eej:eeconj:v:24:y:1998:i:4:p:475-493. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Victor Matheson, College of the Holy Cross (email available below). General contact details of provider: https://edirc.repec.org/data/eeaa1ea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.