Contracting between Firms: Empirical Evidence
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rest_a_00648.pdf
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Author(s)
Sautner, Zacharias
Iyer, Rajkamal Janakiraman
Date Issued
March 2018
Journal
Review of Economics and Statistics
Publisher
MIT Press
Citation
Iyer, Rajkamal, and Zacharias Sautner. “Contracting Between Firms: Empirical Evidence.” The Review of Economics and Statistics 100, 1 (November 2016): 92-104 © 2018 The President and Fellows of Harvard College and the Massachusetts Institute of Technology
Version
Final published version
Abstract
We analyze contracts between a large buyer and her suppliers. We find that contracts with critical product suppliers contain more clauses that address moral hazard, primarily through monitoring. If holdup concerns are larger, there are more contractual protections against it. Over time, contracts with the same supplier include additional provisions that address moral hazard through monitoring. This dynamic effect is strongest for service contracts, where observability and verifiability are initially lower. Our findings indicate that contracts become more complete over time and provide support to incomplete-contracting models that argue that contracts become more complete as contracting costs decrease.
MIT Department
Sloan School of Management
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1162/REST_A_00648
