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From Incentives to Control to Adaptation: Exploring Interactions between Formal and Relational Governance

Author

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  • George Baker
  • Robert Gibbons
  • Kevin J. Murphy

Abstract

In 1991 we began to model interactions between formal and relational incentive contracts. We saw this work as agency theory. By the time the paper was published (BGM, 1994), we had begun to view the research agenda more broadly - with connections to organizational culture, the theory of firms' boundaries, and more. Eventually, we built from this initial work, analyzing delegation within organizations as necessarily informal and moving beyond relational agency to structuring relationships (where parties choose their formal governance structure to facilitate their relational contract). In this essay we sketch theoretical, empirical, and methodological lessons we learned during this twenty-year journey.

Suggested Citation

  • George Baker & Robert Gibbons & Kevin J. Murphy, 2023. "From Incentives to Control to Adaptation: Exploring Interactions between Formal and Relational Governance," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 179(3-4), pages 500-529.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2023-0041
    DOI: 10.1628/jite-2023-0041
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    More about this item

    Keywords

    relational contracts; formal governance structure; incentives; control; adaptation; relationalcontracts; formalgovernancestructure;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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