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The Role of Incomplete Contracts in Self-Enforcing Relationships

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  • Benjamin Klein

Abstract

[fre] Les contrats incomplets ne peuvent pas être expliqués en se fondant uniquement sur les effets incitatifs directs des termes du contrat. Le rôle joué par ces termes en matière d'auto-exécution de l'accord doit aussi être pris en considération. Afin d'économiser les coûts d'une multiplication des spécifications contractuelles, ces coûts incluant ceux de la trop grande rigidité des contrats explicites, les contractants stipulent des clauses d'incomplètude contractuelle qui leur permettent, après la signature du contrat, d'atteindre des niveaux satisfaisants de performances dans le plus grand nombre d'états du marché possible afin de garantir l'auto-exécution de l'accord. Les clauses d'incomplétudes contractuelles permettent de palier efficacement le caractère limité du capital réputation des parties. [eng] Incomplete contracts cannot be explained by focusing solely on the direct incentive effects of contract terms. The role of contract terms in facilitating self-enforcement must also be considered. Transactors avoid the costs of increased contractual specification, including the rigidity of explicit contracts, by using incomplete contract terms only to get close enough to desired performance so that the business relationship is self-enforcing over the broadest range of likely post-contract market conditions. Incomplete contract terms thereby efficiently complement transactors' limited reputational capital.

Suggested Citation

  • Benjamin Klein, 2000. "The Role of Incomplete Contracts in Self-Enforcing Relationships," Revue d'Économie Industrielle, Programme National Persée, vol. 92(1), pages 67-80.
  • Handle: RePEc:prs:recind:rei_0154-3229_2000_num_92_1_1037
    Note: DOI:10.3406/rei.2000.1037
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    Citations

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    Cited by:

    1. Elisabetta Iossa & Giancarlo Spagnolo, 2008. "Contracts as Threats: on a Rationale For Rewarding A while Hoping For B," EIEF Working Papers Series 1022, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2010.
    2. Giorgio Zanarone & Desmond (Ho-Fu) Lo & Tammy L. Madsen, 2016. "The double-edged effect of knowledge acquisition: How contracts safeguard pre-existing resources," Strategic Management Journal, Wiley Blackwell, vol. 37(10), pages 2104-2120, October.
    3. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    4. Todd M. Alessandri & Anju Seth, 2014. "The effects of managerial ownership on international and business diversification: Balancing incentives and risks," Strategic Management Journal, Wiley Blackwell, vol. 35(13), pages 2064-2075, December.
    5. repec:eee:corfin:v:44:y:2017:i:c:p:561-582 is not listed on IDEAS
    6. Maria Bigoni & Giancarlo Spagnolo & Paola Valbonesi, 2010. "Sticks and Carrots in Procurement," "Marco Fanno" Working Papers 0105, Dipartimento di Scienze Economiche "Marco Fanno".
    7. Baker, George P. & Gibbons, Robert & Murphy, Kevin J., 2008. "Strategic alliances: Bridges between "islands of conscious power"," Journal of the Japanese and International Economies, Elsevier, vol. 22(2), pages 146-163, June.
    8. repec:eee:ijrema:v:32:y:2015:i:2:p:187-194 is not listed on IDEAS
    9. Boroumand, Raphaël Homayoun & Zachmann, Georg, 2012. "Retailers' risk management and vertical arrangements in electricity markets," Energy Policy, Elsevier, vol. 40(C), pages 465-472.

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