Determinants of Inter-Firm Contractual Relations: A Case of Indian Software Industry
AbstractWe analyze the impediments to inter-firm contractual relations, existing formal and informal ways of getting around them, especially the role of reputation and trust in mitigating the conflict of interest between the firms. We study it in the context of Indian IT industry. Contract design is specified as a function of reputation (age, repeated contracts and quality certification), asset specificity, complexity and uncertainty. We test the likelihood of observing Time & Material contract, a better propertied contract in the face of uncertainty. Empirical evidence conforms the propositions posited. Reputed firms tend to get highly complicated and uncertain projects. Asset specific investments do not seem to have any implication on contract type and complexity. The results broadly hint that the firms reckon more on creating an understanding through formal quality certifications to solve pre-contractual adverse selection problems and repeated contracting to solve the problems of behavioral uncertainties rather than relying on the court.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 3795.
Date of creation: 2004
Date of revision:
Transaction Cost; Inter-firm Contractual Relations; Reputation and Outsourcing;
Other versions of this item:
- Francis Xavier Rathinam, 2008. "Determinants of Inter-Firm Contractual Relations: A Case of Indian Software Industry," The IUP Journal of Financial Economics, IUP Publications, IUP Publications, vol. 0(4), pages 73-85, December.
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
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- Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 22(2), pages 233-61, October.
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