How should an organization choose policies to strengthen its relationships with employees and partners? We explore how biased policies arise in relational contracts using a flexible dynamic game between a principal and several agents with unrestricted vertical transfers and symmetric information. If relationships are publicly observed, then optimal policies are never biased– they are always cho...

Game theory is rampant in economics. Having long ago invaded industrial organization (the sub-field of economics that studies firms and their product markets), game-theoretic modeling is now commonplace in international, labor, macro, and financial economics, and is gathering steam even in development economics and economic history. Nor is economics alone: accounting, law, marketing, political ...

A large literature identifies unique organizational capabilities as a potent source of competitive advantage, yet our knowledge of why capabilities fail to diffuse more rapidly—particularly in situations in which competitors apparently have strong incentives to adopt them and a well developed understanding of how they work— remains incomplete. In this paper we suggest that competitively signifi...

This paper analyzes the problem of optimal job design when there is only one contractible and imperfect performance measure for all tasks whose contribution to firm value is non-verifiable. I find that task splitting is optimal when relational contracts based on firm value are not feasible. By contrast, if an agent who performs a given set of tasks receives an implicit bonus, the principal alwa...

Economic performance depends crucially on how parties adapt to changing circumstances. We therefore study how the organization of economic activity can facilitate such adaptation. We focus on settings where spot transactions would produce inefficient adaptation, so we ask whether alternative governance structures (allocations of control) facilitate relational contracts that improve on spot adap...

This explorative study examines customer-supplier relationships from the perspective of psychological contracts. Based on findings from a multiple case study, the content of the psychological contracts of individuals involved in customer-supplier relationships are presented. The study provides support for the use of psychological contracts for describing the dynamics of customer-supplier relati...