Competition and Relational Contracts: The Role of Unemployment as a Disciplinary Device When unemployment prevails, relations with a particular firm are valuable for workers. As a consequence, a worker may adhere to an implicit agreement to provide high effort, even when performance is not third-party enforceable. But can implicit agreements – or relational contracts – also motivate high worker...

We develop a model of nonstationary relational contracts in order to study internal wage dynamics. Workers are heterogeneous and each worker’s ability is both private information and fixed for all time. Learning therefore occurs within employment relationships. The inferences, however, are confounded by moral hazard: the distribution of output is determined by both the worker’s type and by his ...

We integrate, extend and apply economic, legal, sociological and psychological governance perspectives on relational contracts in the face of the heretofore neglected contractual hazard of “displaced agency” (i.e., the costs that accrue to a series of interdependent transactions as a result of counterparties’ incentives to pass through or shift costs or responsibilities to a counterparty not re...

Two types of contractual solutions have been proposed for resolving incentive conflicts in vertical relationships: formal and relational (i.e., enforceable or not by third parties). Much is known about the optimal structure of formal contracts, but relatively little is known about the structure of relational contracts. We study a core feature of the latter: the conditions leading to continuatio...

With the increasing complexity and dynamism of modern work experience, importance psychological contract has become increasingly clear. Organizations researchers alike have recognized implications this for employee performance, satisfaction well-being. However, certain contexts can increase psychosocial risks, making it crucial to investigate individual contextual characteristics that promote w...

This study examines the influence of psychological contracts on the relations between social ties and knowledge exchange in virtual teams. We empirically tested our model in a field study of virtual teams in a large, multinational R&D firm. Results of structural equation modeling suggest two important antecedents to psychological contracts of knowledge sharing: instrumental and relational embed...

participants at Chicago, HBS, NYU, and Yale for their feedback on an earlier draft. All errors and omissions are ours alone. Please send any feedback or questions to: Jason Greenberg at: Abstract Social scientists have long considered what mechanisms underlie repeated exchange. Three mechanisms have garnered the majority of this attention: Formal contracts, relational contracts, and embedded so...

This paper examines how relational contracting affects the pattern of trade across the economy. We suppose a firm (principal) repeatedly chooses among of a set of potential trading partners (agents) under the threat of holdup. The possibility of ex–post opportunism allows agents to collect rents, which act like a fixed cost that the principal must pay when initiating a new relationship. The pri...

We study infinitely repeated two player games with perfect information, where each period consists of two stages: one in which the parties simultaneously choose an action and one in which they can transfer money to each other. We first derive simple conditions that allow a constructive characterization of all Paretooptimal subgame perfect payoffs for all discount factors. Afterwards, we examine...

This paper analyzes the use of alternative performance measures in an agency model in which contracting incorporates both formal and informal agreements. It is shown that under a proper use of verifiable and unverifiable performance measures, the two types of contracts are complements, regardless of the principal’s fallback position. The analysis therefore contrasts earlier results of the liter...