Baker Gibbons Murphy (2002) - Relational Contracts And The Theory Of The Firm

• This page is referenced in PHDBA602 (Theory of the Firm)

Reference(s)

Baker, George, Robert Gibbons and Kevin J. Murphy (2002), "Relational Contracts and the Theory of the Firm", The Quarterly journal of economics, vol. 117, issue 1, page 39 pdf

Abstract

Relational contracts - informal agreements sustained by the value of future relationships - are prevalent within and between firms. We develop repeatedgame models showing why and how relational contracts within firms (vertical integration) differ from those between (nonintegration). We show that integration affects the parties’ temptations to renege on a given relational contract, and hence affects the best relational contract the parties can sustain. In this sense, the integration decision can be an instrument in the service of the parties’ relationship. Our approach also has implications for joint ventures, alliances, and networks, and for the role of management within and between firms.