Discussion Paper Details

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Title: Relational Contracts and Property Rights

Author(s): Matthias Blonski and Giancarlo Spagnolo

Publication Date: July 2002

Keyword(s): implicit contracts, incomplete contracts, non-contractual relations, ownership structures, supply relations, theory of the firm and vertical integration

Programme Area(s): Industrial Organization

Abstract: We propose a general framework for analyzing and comparing ownership structures with respect to creating incentives for co-operative behavior (e.g. efficient investment) in long-run relationships. We generalize models by Garvey (1995), Halonen (2002), and Baker, Gibbons and Murphy (2002) and compare their results in the light of our theory, going in depth into the issue of renegotiation of ownership and strategies. We show that when agents are not restricted in their strategy choice, the short?term efficient ownership structure identified by Hart and Moore (1990) is not relational efficient ? i.e. does not maximize the set of discount factors under which efficient investment can be supported in equilibrium of the repeated game. Moreover, the relational efficient ownership structure is independent of what can be renegotiated: ownership, strategies, both or none.

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Bibliographic Reference

Blonski, M and Spagnolo, G. 2002. 'Relational Contracts and Property Rights'. London, Centre for Economic Policy Research.