Morten Hviid

University of Warwick, Department of Economics

© Copyright 1998 Morten Hviid


1. Introduction  
A. Long-Term Contracts  
2. Long-Term Contracts: General  
3. Renegotiation  
4. Unforeseen Contingencies  
5. Short-term vs. Long-term Contracts  
6. Empirics  
B. Relational Contracts  
7. Relational Contracts: General  
8. Endogenous Cooperation  
9. Concluding Remarks  
Bibliography on Long-Term Contracts and Relational Contracts (4200)  


This entry discusses the literature on long-term contracts and relational contracts. The central issues in the literature on long-term contracts are the effects of renegotiation and what these contracts can accomplish over and above a series of short-term contracts. The literature on relational contracts focus on how self-enforceable terms can be supported without the use of enforceable contracts. Among the possible answers to this are repetition and norms.

JEL classification: C72, D82, K12.

Keywords: Long-Term Contracts, Renegotiation Proofness, Relational Contracts, Repeated Games, Norms

1. Introduction  

For contracts of a non-trivial duration, contract law faces the dilemma of on the one hand offering a means of commitment and on the other allowing for sufficient flexibility to adjust to changes in the environment. "This tension between the need to fix responsibilities at the outset and the need to readjust them over time permeates the long-term contractual relationship." Baird (1990, p. 586) . This tension is basic to both long-term and relational contracts.

This entry discussed two classes of contracts, long-term contracts and relational contracts. Although closely related, neither is a subset of the other. Completely state-contingent long-term contracts are clearly not relational. Incomplete long-term contracts would in most cases be relational, although, as pointed out by Eisenberg (1995) , they need not be. As regards relational contracts, "[t]wo features largely define what lawyers mean by a relational contract: incompleteness and longevity. Relational contracts govern continuing relations." Schwartz (1992b, note 1, p. 271) . However, as pointed out in Goetz and Scott (1981) a relational contract need not be a long-term contract, although in most cases it would be.

The two literatures appear to address different issues and hence will be discussed separately below. The central issues in the literature on long-term contracts seems to be the effects or renegotiation as well as what can be accomplished by such contracts over and above what can be achieved by a series of short-term contracts. The literature on relational contracts assume that contract terms are not used and focus on how repeated interaction and social norms can ensure that obligations between parties can become self-enforceable.

A. Long-Term Contracts  

2. Long-Term Contracts: General  

Summaries of the literature can be found among other in Bolton (1990) , Hart (1987) , Hart and Holmstrom (1987) and most recently in Salaniéé (1997, chapters 6 and 7) . For a recent survey focusing solely on labor contracts, see Malcolmson (1997) .

Following Salanié (1997, p. 150) , a dynamic (long-term) contract is complete if "all variables that may have an impact on the conditions of the contractual relationship during its whole duration have been taken into account when negotiating and signing the contract". This definition rules out any unforeseen contingencies which may arise during the duration of the contract. However, it does not rule out asymmetric information. If, for example, the principal can never observe the effort of an agent, the contract cannot stipulate a level of effort. According to the above definition, the contract is still complete if no information of future relevance will become available later on in the life of the contract. Some authors, such as Hart (1995) refer to this as a comprehensive contract, because "there will never be a need for the parties to revise or renegotiate the contract as the future unfolds" Hart (1995, p. 22) .

For an early demonstration that long-term complete contracts can enable valuable commitment, see Grout(1984) . In the case where complete contracts can be written, full commitment is always valuable, since a contract with full commitment can always mimic the outcome of any other contract with less commitment by committing to the same actions as lead to the outcome for the latter contract, see Salanié (1997, p. 144-146) .

Commitment to a contract can either be broken by a unilateral deviation, namely breach, or multilateral deviation, namely renegotiation. In case of breach, one party has access to the legal system to either enforce the contract or to award damages. When using the legal system is costless, whether breach is actually possible depends on the breach remedies used by the court. If the remedy is specific performance, the contract can only be varied by mutual consent. If, as is more commonly the case, the remedy is expectation damages, one party can always decide to breach and pay the damages. See entry ( 4600 Remedies: General )

In the case of a multilateral deviation where both parties want to vary the contract term, it is in general not possible to hold the parties to the original contract by legal means. "[B]oth parties' commitments are only as strong as their contracting partners' desire to hold them to their original promises." Jolls (1997, p. 203) . Since commitment is valuable when complete contracts can be written, losses may occur if renegotiation at any point during the life of the contract cannot be prevented. Although Jolls (1997) does offer some suggestions for enforcing terms which both parties would later agree to vary, it would appear that renegotiation is difficult to rule out legally. This then leads to a focus on contracts which are renegotiation proof, see Dewatripont (1989) and Bolton (1990) .

One reason why there may be scope for renegotiation is that ex ante efficiency may require ex post inefficiency. For example, in order to separate out workers with different levels of unobservable productivity, the menu of contracts offered to the workers will generally not imply that all types get their first-best contract. However, once their type has been inferred from their choice of contract, it is (ex post) efficient to renegotiate these contracts. Doing so may make a renegotiated contract of a type A worker more attractive for a type B worker than the contract which ex ante was designed for type B and the original menu will no longer be fully separating. Thus removing the ex post inefficiencies may remove the incentives which ensured that the contract was ex ante efficient.

3. Renegotiation  

As pointed out among others by Bolton (1990, p. 304) "[i]t turns out that the role of and issues raised by renegotiation are somewhat different when the contracting problem is set in an environment of asymmetric information as opposed to an environment of symmetric but unverifiable information." The difference between the two cases relates to whether some ex-post inefficiencies remain when renegotiation is possible.

Asymmetric information

For the case of adverse selection, the value of commitment is very clear. Consider a dynamic contract between a principal and an agent, where initially the productivity of the agent is not known to the principal. In any separating equilibrium, the productivity of the agent will be known to the principal after the first period. For the "bad" type of agent, separation involves a distortion leading to a lower utility in every period of the contract than would be the case if his true type was known. If the true type is really the bad type, the distortion can be removed after the first period when the agents type is known for sure. Hence if renegotiation is possible, it will take place - the contract is not robust against renegotiation. Moreover, since both parties want to renegotiate, it is difficult to see how the legal system can prevent this happening. Papers such as Dewatripont (1989) turn the focus on contracts which are renegotiation-proof, that is, contracts where there is never an incentive to renegotiation. With comprehensive contracting this is possible, because any incentive to renegotiate later could have been foreseen at the time of agreeing the original contract. As is shown in Dewatripont (1989) , Hart and Tirole (1988) , Laffont and Tirole (1987,   1990) the possibility of renegotiation slows down the speed of revelation. Essentially this is caused by a trade-off between speedy revelation and the damaging incentive to renegotiate.

Moral Hazard

For the case of moral hazard, the literature is less well developed. Fudenberg and Tirole (1990) consider a principal-agent model where there is a gap in time between the agent taking a hidden action and the outcome of this being known. If the principal can infer the agent's action before the outcome is known, a renegotiation which perfectly insures the agent is optimal. However, if the agent realizes this, the incentive structure of the original contract is blunted. As in the case of adverse selection, information revelation has to be slowed down. In the moral hazard case this is achieved by the agent randomizing over its choice of action. The essential lesson from this model is that if renegotiation is possible after effort has been chosen, then the principal cannot make the agent choose the optimal effort for sure. Hence renegotiation again leads to an efficiency loss. Related papers in this area are Chiappori et al. (1994) and Ma (1991) .

Symmetric but unverifiable information

Consider a contract on future trade between two parties. Because the information and hence the state of nature is unverifiable by a third party, a contract cannot be conditioned on this state. However, because information is symmetric, any negotiation of the sharing of the surplus in such a state will, given the symmetry of information, be efficient. Problems arise because the ex post sharing of the surplus need not be ex ante efficient. Contracts which are proof against renegotiation can still improve upon an allocation without any long-term contract by designing the environment of the renegotiation in the unverifiable state. Hart and Moore (1988) show how the ex ante contract can be constructed to affect the bargaining power of the two parties ex post. However, this literature is not as yet well developed, but other papers in this area are Aghion et al. (1990) and Bolton (1990) .

4. Unforeseen Contingencies  

Because unforeseen contingencies may arise during the life of the contractual relationship, there is a need to fill in the consequent gap between obligations. Gap filling in general is discussed in ( 4000 Contract Law ). Renegotiation may be valuable as one would expect the contracting parties to be able to fill the gap at a lower cost than a third party, partly because the contracting parties can be assumed to have better information. As in the case of symmetric but unverifiable information, long-term contracts may allow the parties to at least partly design the environment under which the (re)negotiation takes place.

In terms of modeling unforeseen contingencies, there is not as yet an agreed approach. What is clear is that at least for contract issues, simply treating unforeseen contingencies as events which occur with probability zero is not generally appropriate. If the contingency occurs with probability zero, the expected cost of not providing for it in a long-term contract is also zero, and hence the more flexible short-term contract would not appear to offer any advantage due to any unforeseen contingencies. For a survey of the state of the art as well as a discussion of incomplete contracts, see Dekel et al. (1998) .

The theory of residual control rights, developed in Grossman and Hart (1986) and Hart and Moore (1990) , see also Hart (1995) , offers one way in which we can approach the problem of modeling unforeseen contingencies. Residual control rights determine who has the right to decide on how a particular asset should be used whenever an unforeseen contingency occurs. Thus even if the actual event cannot be described, rules for who fills in the gap for a particular class of events can be described. See also Kreps (1990) .

In general, in the case of unforeseen contingencies, the ability to renegotiate or put differently, contractual flexibility, may be efficiency enhancing rather than an added constraint.

5. Short-term vs. Long-term Contracts  

With asymmetric information, the possibility of renegotiation slows down information revelation. This is equally true in the case where only a series of one-period (or spot) contracts can be signed, an effect known as the ratchet effect, see Freixas et al. (1985) . What are then the fundamental differences between short-term and long-term contracts?

The literature suggests that the performance of long-term contracts may differ from a series of short-term contracts for a number of reasons. The (transaction) costs of negotiating and policing one long-term contract may be lower than negotiating a series of short-term contracts. Long-term contracts may enable income smoothing if this is not available via credit markets. If regenotiation can be avoided, they also offer better commitment. Informational asymmetry may also favor long-term contracts. For a general discussion, see Hart and Holmstrom (1987) .

It is fairly obvious that differences in transaction costs may lead to differences in the performance of long-term and short-term contracts. Not only may the actual costs of writing the contracts be different, but if renegotiation is costly, the commitment aspect of long-term contracts may also be strengthened. This area does not appear to be well developed but see Dye (1985) .

In a principal-agent model of asymmetric information Malcomson and Spinnewyn (1988) show that, in the absence of renegotiation, long-term contracts can improve on short term contracts only if they commit either the principal or agent to a payoff in some future circumstance which is lower than what could be obtained from a short term contract negotiated if that circumstance occurs. Thus the long-term contract has to have some commitment value in order to be preferred to a series of short-term contracts. Similar results are obtained in Allen (1985) .

In the special case where the contracting parties have perfect information, Crawford (1988) shows that short-term contracting distorts investment decisions only when the efficient plan involves mainly sunk cost investment and the relationship plays a consumption smoothing role. In this case the main role for long-term contracts is to serve as a substitute for an efficient credit market.

In a pure moral hazard principal-agent model, Chiappori et al. (1994) demonstrate that two conditions are necessary in order that there is no difference between what can be achieved by an optimal long term contract and a series of spot contracts. Firstly, the long-term optimum must be renegotiation proof. This reduces the commitment value of a long-term contract. However, this is not sufficient. In addition, the spot contracts should provide efficient consumption smoothing. When the agent does not have access to credit markets, spot contracting does not allow for consumption smoothing and hence spot contracts cannot implement the long-term contract. However, if the agent has access to credit markets and the principal can monitor this, we do get spot implementation, a result also found in Fudenberg et al. (1990) , Malcomson and Spinnewyn (1988) and Rey and Salanié (1990) . The case where the agent has access to capital markets but where the access cannot be monitored is more complicated because the spot contract may involve more smoothing that the renegotiation-proof long-term contract.

If consumption smoothing is a strong reason for preferring long-term contracts over short-term contracts, one might expect that in labor markets, the lower the wage, the more likely would be long-term employment contracts. This does not seem to be the case in reality. For this reason, Fudenberg et al. (1990) assume away any imperfect capital market influences and focus on problems caused by asymmetric information. They consider long-term contracts that cannot be renegotiated and set out the circumstances under which these have a value above a series of spot contracts or a contract which is renegotiation proof. Due to the asymmetric information, two types of adverse selection, which imply a value to the commitment of a long-term contract, can arise. The first case arises if the preferences of the principal and the agent over future contingent outcomes are not common knowledge. As was noted above, if more information about the agent becomes available over time, there may be scope for renegotiation. The second case arises when the outcome on some date $t$ conveys information on actions taken by the agent prior to that date. At date $t$, the principal, on the basis of this new information, may wish to punish or reward the agent for the past actions. However this is not possible if there is not a binding long-term contract. One of the main contributions of this paper is to make precise when there would be a benefit to ruling out renegotiation.

The existing literature has demonstrated that even if renegotiation cannot be ruled out, long-term contracts may still dominate a series of short-term contracts. At the same time, the benefit of long-term contracts would be much enhanced if renegotiation could be at least limited.

6. Empirics  

Despite the huge problems of getting data, a substantial number of empirical studies have considered long-term contracts. A general survey and evaluation can found in Lyons (1996) . An incomplete list of empirical case studies of long-term contracts include among others: Chisholm (1993) (the movie industry), Crocker and Lyon (1994) , Crocker and Masten (1988 , 1991) and Masten and Crocker (1985) (the design and duration of long term contractual relationships for natural gas), Gallassi (1992) (share contracts in early Renaissance Tuscany), Goldberg (1985a) , (aluminium), Goldberg and Erickson (1982)??? (petroleum coke), Joskow (1985a , 1988 , 1990) (contacts between electricity generators and coal suppliers), Lafontaine (1992) (franchising), Lyons (1994) (small subcontractors making specific inputs for customers in the engineering industry), Palay (1984) (rail freight).

B. Relational Contracts  

7. Relational Contracts: General  

The relational move appears to grow out of the empirical work by Macaulay (1963) with the origin of the term relational contract usually traced to McNeil (1974) . Given the impact of this work, it is surprising how few replications have been carried out to date. The best known of these is Beale and Dugdale (1975) , but see also Kenworthy et al. (1996) and Esser (1996) . The lack of replication is a concern because the modest sample sizes in these studies imply that the results are not generally statistically significant. For example, Macaulay's sample was 68 businessmen and lawyers representing 43 companies and 6 law firms whereas Beale and Dugdale's sample was 33 individuals in 19 firms of engineering manufacturers. Although in both cases the authors are careful to point out the potential weaknesses of their data, studies which rely on their results for motivation are less careful to point this out.

The main empirical observation of relevance to the relational contract literature was that firms within the same industry tended to resort to neither contract terms nor contract law to settle disputes about obligations. Although persuasive, neither Macaulay (1963) nor Beale and Dugdale (1975, p. 47) offer any tests of statistical significance. Beale and Dugdale (1975, p. 47) do offer an insight into when the result did not hold, namely when firms in the sample were transacting with `outsiders'. "Firm frequently stated that they would take much greater care when contracting with relatively unknown parties, especially those outside the engineering trade." Beale and Dugdale (1975, p. 47) . From these studies it would appear that contracts have little relevance where the parties "knew" each other.

To aid a discussion of the contribution of relational contract scholarship, a clear definition of what is a relational contract would be helpful. However, although several have to date been offered, most of whom are discussed in Eisenberg (1995) , none appear to be universally accepted. Goetz and Scott (1981) argue that what makes a contract relational is that there are states of the world where obligations cannot ex ante be define. "A contract is relational to the extent that the parties are incapable of reducing important terms of the arrangement to well-defined obligations. Such definitive obligations may be impractical because of the inability to identify uncertain future conditions or because of inability to characterize complex adaptations adequately even when the contingencies themselves can be identified in advance." Goetz and Scott (1981, p. 1091) . The central role for the relationship between the contracting parties for the duration of the contract would appear to be the manner in which a gap is filled.

MacNeil, in a series of papers MacNeil (1974 , 1978 , 1981a , 1987a) , highlights the importance of two principles of behaviour: solidarity and reciprocity. "Getting something back for something given neatly releases, or at least reduces, the tension in a creature desiring to be both selfish and social at the same time; and solidarity - a belief in being able to depend on another - permits the projection of reciprocity through time". MacNeil (1987a, p. 274-275) . The importance of these have been tested in Kaufmann and Stern (1988) , who study how firms react to breach by a trading partner. They demonstrate how firms are initially very forgiving in order to maintain the relationship, but that once they judge that the partner has acted opportunistically, their attitude change dramatically. For a discussion of this and other empirical work on relational contracts, see Lyons (1996, p. 45-49) .

Relational contract theory can be seen as an attempt to generate a model able to explain when transacting parties do not resort to contracts and by what means they ensure that each party fulfils their obligations. The theory focuses on the relationship between the "contracting" parties and posits that this leads to cooperation and to implicit obligations being self-enforcing. In the extreme, no formal contract is needed to ensure that all gains from a particular transaction are realized.. The theory rests on repeated interaction within a particular well-defined group together with a set of norms governing the behaviour of the group members. Whereas the literature on long-term contracts focuses on the problems which arise because of incompleteness and the potential for renegotiation, the theory of relational contracts focuses on the relationship between the contracting parties which ensures that opportunistic behaviour does not arise. Unless we assume that individuals are naturally cooperative, the next step is to determine how cooperation might emerge anyway.

8. Endogenous Cooperation  

One way to understand the observations in Macaulay (1963) , as well the attempts to define a relational contract, is as follows. If having the reputation of either keeping to a contract term, or modifying or bargaining to fill a gap in good faith, is sufficiently important (or valuable), the law is not needed to enforce this term. Reputation is valuable either when interacting with the same individual on several occasions or when interacting sequentially with several individuals. In a relational contract, the parties rely on each other to behave in a cooperative manner for the duration of the contract, rather than exploiting any opportunity which may come along. "Parties who enter contracts desire coordinated, and hence cooperative, actions on the part of their contracting opposites. Therefore, the principal measure of the success of our contract law is whether it in fact induces cooperation." Baird (1990, p. 584)  

The remainder of this section considers briefly how and when cooperation can occur endogenously among, to follow MacNeil, creatures desiring to be both selfish and social at the same time. The discussion makes clear how norms can play an important role in this theory.

The Folk Theorem and Repeated Games

Repeated games consider the possibility of achieving cooperation through self-enforcing (possibly tacit) agreements. These are discussed more extensively in entry ( 0550 game theory applied to law ), see also Baird et al. (1995) and Hirsleifer (1994) . Consider a game where the non-cooperative Nash equilibrium is Pareto dominated by another outcome. This is for example the case in the Prisoner's Dilemma, or in a game where A must decide whether or not to lend B money and B must subsequently decide whether or not to pay A back. If the parties could write a binding contract, they could clearly implement a better outcome for both. If that is not the case, any (tacit) agreement to cooperate must be self-enforceable.

Repeated interaction may enable cooperation, because of the potential for a current deviation to be punished in the future. For this to work, four conditions must be met. Any deviation must be observable and it must be punishable. This punishment must be credible so that it is clear that when required the punishment will be carried out, and the parties must be patient in the sense that the future matters to them.

The Folk Theorem for repeated games loosely speaking states that if the players are sufficiently patient and the game is repeated for a sufficient number of periods, the players can cooperate to obtain a better outcome than the non-cooperative Nash Equilibrium of the one period game. Put differently, the short-term gain from deviation is more than off-set by the present discounted value of the future punishment. The Folk Theorem generalizes to many different settings. Cases where there are uncertainty, informational asymmetries, differences in the identity of the players, overlapping generations of players and random matching between players can all give rise to folk theorem type outcomes. Thus, for example, the repeated interaction does not have to be between the same two individuals over time.

In order to cooperate, the parties have to "agree" on two issues: which cooperative outcome should be support and which punishment should be used in case of a deviation. Although this agreement could be tacit, when we are talking about contractual relationships, it is more natural to think of this as an explicit agreement. Not only are there typically many outcomes which could be supported, but each outcome may also be supportable by many different forms of punishment. Of the latter, the best known are Tit-for-Tat (each payer in this period does what the other player did in the last period), the (Grim) Trigger Strategy (deviation is followed by non-cooperation in all future periods) and Stick and Carrot (severe punishment followed by forgiveness). Because there are many different potential punishments, norms may pay a crucial role in selecting which path is used. This is particularly important where the cooperation is between many different individuals over time. If A is willing to cooperate with or trust B because B cooperated with many other individuals in the past it is important that A understand if and when B is being punished. For more on this see ( 0780 Non legal Sanctions ). Thus the theory would predict that cooperation is more likely between fairly homogeneous groups.

There are cases where repetition does not admit cooperation. The most notable case is when the number of periods over which the game is played is finite and known, where the equilibrium of the one-period game is unique and where the exact characteristics of the players are known to all players. In the last period defection will occur because there is no future in which to punish this. But then cooperation in the penultimate period cannot be supported by a combination of a credible promise of cooperation in the last period combined with a threat of defection in the last period as a punishment. Much is made of this in Jolls(1997) . However, if just one of the three conditions is violated, cooperation may emerge. If there is an uncertainty about whether this period is the last, then there is still a potential future and hence a future punishment to worry about if a player decides to deviate. If the stage game has multiple equilibria, cooperation may be possible because a credible threat consisting of the "worst" equilibrium can be issued. If there is some small chance that one of the players is not a rational economic actor at all, but is an irrational type who will cooperate regardless, the rational type may prefer to maintain a reputation for being irrational.

Some of the punishments which supports cooperative outcomes harm both the guilty and the innocent. In such cases, the innocent has an incentive to accept any request for forgiveness, which would destabilize the cooperative agreement as deviations from cooperation are not punished. Although there is no formal contract, this problem is one of renegotiation resembling that encountered in long-term contracts. A social norm entailing punishment for cheaters would clearly support cooperation. On the other hand, a social norm of forgiveness would not.

Relational contracts and repeated games

Scott (1987b) represents an early, if incomplete, attempt to model long-term contracts as a repeated game. Unfortunately the paper does not fully utilize the then available theory on repeated games. Scott recognises that cooperation may arise without any contracts at all and points out that legal rules can affect both the formation of the contract ("the initial risk allocation") and later adjustments to the contract, but argue that the greater effect is on the initial risk allocation. This effect comes via implied terms and express invocations. Scott highlights the importance of norms, in particular the norm of "reciprocity". The analysis is summarized as follows:

"Contracting parties use a mix of legal and extralegal mechanisms, as well as patterned and individualized responses, to ameliorate the information and enforcement deficits that threaten emergent patterns of cooperation. Nevertheless, contractual breakdowns are inevitable. Patterns of cooperation in contractual relationships are inherently unstable, especially where one party is threatened with substantial losses (or tempted with substantial gains). Where necessary adjustments are of lesser magnitude, however, social norms aimed at introducing long-term cooperation will often prompt adjustment, and legal rules provide appropriately remote, but harsh, deterrents and incentives." Scott (1987b, p. 2049) .

Other attempts to model relational contracts using repeated games are found in Baird (1990) , Baird et al. (1995) , Campbell and Harris (1993) , Hviid (1996 , 1998) and, for an example of the use of experimental methods, Hackett (1994) .

One insight from the theory of repeated games is that successful cooperation does not necessarily involve observing either deviations or punishments. This does not reduce the importance of the punishment because it is what keeps opportunism in check. Contract law potentially affects the available punishments, their severity and the gains from deviation. Hadfield (1990) notes that in franchise contracts courts consistently fill gaps to the benefit of one side of the contract (the franchisor). This may severely hamper the ability of the franchisor to credibly promise to act in good faith. Contract terms also affect the ability to punish. The severity of the punishment can be increased by leaving the contract more incomplete than necessary, see Bernheim and Whinston (forthcoming) and Hviid (1998) . Other examples are terms implying expensive third party arbitration, rights to terminate the contract (e.g. franchises), or demands of performance under the contract. All these terms can make non-cooperative behaviour potentially costly. Thus contract law and contract terms may matter even in relational contracts which are substantially relying on self-enforceable agreements and where the law is not seen to be used.

Repetition may not in itself be sufficient to ensure cooperation. In some cases this depends on the available institutions. An interesting combination of repeated games and institutional design as a means to overcome incentives for short-term opportunistic behaviour is found in Greif et al. (1994) . They model the emergence of merchant guilds in the late medieval period as a response to the incentives of the ruler of a trade centre to opportunistically appropriate rents from some of the traders. In their model repetition as such is insufficient to ensure cooperative behaviour by a ruler because the ruler can abuse individual traders, whose threat of punishing the ruler by staying away from the centre is non-credible if most of the other relevant traders do not know about the abuse and hence continue to use the trading centre. Strong merchant guilds can credibly initiate a collective punishment (a boycott for a given period) by coordinating the actions of its members. One relevant lesson for relational contract theory is that institutions may still matter. Moreover, the institution of the guild had an effect even if a boycott was never observed in the same way that legal institutions may have an effect even if they are never seen to be active.

Finally, what might on the face of it appear to be a mixture of relational and written contracts has been considered in Klein (1996) , who argues that court enforcement and private enforcement need not be alternative contract enforcement mechanisms, but may be complements. The former may on its own generate too much rigidity, making it possible for one party to "hold-up" the other when conditions change radically (one have to think of such radical changes as being insufficient to excuse performance, but radical enough that they were not covered by the original contract). The latter generates too much flexibility.

The idea of Klein (1996) is that private enforcement creates a range of self-enforcement. So long as the change to the environment does not place the gains from a hold-up outside what can be negated by private punishment, the hold-up will not occur. Court enforceable contract terms can be used to change this range, either by extending it, by shifting it, or by affecting the probability distribution over the value of a hold-up. It is in this way that court and private enforcement becomes complementary.

It is worth noting that unless the definition of a relational contract is weakened, it does not seem that the framework in Klein (1996) provides an economic justification for relational contracts since the contract terms which have been agreed must be enforced, i.e. there is nothing relational about that part of the contract. Moreover, if the courts fail to enforce the terms of a contract literally, then this may paradoxically create more scope for hold-ups.

9. Concluding Remarks  

The impact of the relational contract theory on the economic literature on incomplete long-term contracts as well as mainstream law appears to date to have been relatively modest. This may partly be because "it is impossible to locate, in the relational-contract literature, a definition that adequately distinguishes relational and non-relational contracts in a legally operational way - that is, in a way that carves out a set of special well-specified contract for treatment under special well-specified rules." Eisenberg (1995, p. 291) , see also Craswell and Schwartz (1994, p. 199) . If this is not the case, there appears little point to making the distinction and given the lack of a common jargon between economics and law, it is not clear what would be achieved by relabelling contracts. The main contribution of the relational contract theory so far would appear to be to highlight the potential importance of the relationship between the contracting parties and the social groups to which these belong, including the importance of norms and non-legal sanctions.

However, the success or failure of transacting does not solely depend on the relationship between the contracting parties, because contracts also play a significant role. A fruitful way to look at contracts would be as a combination of legally enforceable and self-enforceable obligations. This recognises that whereas some obligations need to be self-enforceable because third parties cannot verify the facts giving rise to a particular obligation, others need to be self-enforceable because of the (transactions)costs of using the legal system. Moreover, in order to cope with unforeseen contingencies, the parties may either rely on each other to handle the new situation in good faith, or, by using the contract to allocate residual control rights, place the onus on a particular party. The recent paper by Klein (1996) is a promising step in that direction, offering the possibility of a more balanced view between incomplete contract theory and relational contract theory.


I would like to thank David Campbell, Bruce Lyons and an anonymous referee for helpful comments on the first draft. They are naturally blameless for any remaining errors and short-comings.

Bibliography on Long-Term Contracts and Relataional Contracts (4200)  

Acheson, James M. (1985) , 'The Maine Lobster Market: Between Market and Hierarchy', 1 Journal of Law, Economics, and Organization , 385-398.

Adams, Michael (1988) , 'Franchising - A Case of Long-Term Contracts: Comment', 144 Journal of Institutional and Theoretical Economics , 145-148.

Adelstein, Richard P. (1991) , 'Deciding for Bigness: Constitutional Choice and the Growth of Firms', 2(1) Constitutional Political Economy , 7-30.

Aghion, Philippe, Dewatripont, M. and Rey, P. (1990) , 'On Renegotiation Design', 34 European Economic Review , 322-329.

Aivazian, Varouj A., Trebilcock, Michael J. and Penny, Michael (1984) , 'The Law of Contract Modifications: The Uncertain Quest for a Benchmark of Enforceability', 22 Osgoode Hall Law Journal , 173-212. Reprinted in Goldberg, Victor P. (ed.), Readings in the Economics of Contract Law, Cambridge, Cambridge University Press, 1989, 207.

Allen, Franklin (1985) , 'Repeated Principal-Agent Relationships with Lending and Borrowing', 17 Economic Letters , 27-31.

Arvan, Lanny and Leite, A.P.N. (1990) , 'Cost Overruns in Long Term Projects', 8 International Journal of Industrial Organization , 443-467.

Azariadis, Costas (1988) , 'Human Capital and Self-Enforcing Contracts', 90 Scandinavian Journal of Economics , 507-528.

Baird, Douglas G. (1990) , 'Self-Interest and Cooperation in Long-Term Contracts', 19 Journal of Legal Studies , 583-596.

Baird, Douglas G., Gertner, Rober and Picker, Randal C. (1995) , Game Theory and the Law , Cambridge (MA), Harvard University Press.

Barnett, Randy E. (1992) , 'Conflicting Visions: A Critique of Ian Macneil's Relational Theory of Contracts', 78 Virginia Law Review , 1175-1206.

Beale, H. and Dougdale, Tony (1975) , 'Contracts Between Businessmen: Planning and the Use of Contractual Remedies', 2 British Journal of Law and Society , 45-60.

Bendor, Jonathan and Mookherjee, Dilip (1990) , 'Norms, Third- Party Sanctions, and Cooperation', 6 Journal of Law, Economics, and Organization , 33-63.

Bernheim, B. Douglas and Whinston, Michael D. , 'Incomplete Contracts and Strategic Ambiguity (forthc.)', American Economic Review .

Bernstein, Lisa (1992) , 'Opting out of the Legal System: Extralegal Contractual Relations in the Diamond Industry', 21 Journal of Legal Studies , 115-157.

Bernstein, Lisa (1996) , 'Merchant Law in a Merchant Court: Rethinking the Code's Search for Immanent Business Norms', 144 University of Pennsylvania Law Review , 1765-1821.

Bester, Helmut (1989) , 'Incentive-Compatible Long-Term Contracts and Job Rationing', 7 Journal of Labor Economics , 238-255.

Bishop, William and Prentice, D.D. (1983) , 'Some Legal and Economic Aspects of Fiduciary Remuneration', 46 Modern Law Review , 289 ff.

Blair, Roger D. and Kaserman, David L. (1987) , 'A Note on Bilateral Monopoly and Formula Price Contracts', 77 American Economic Review , 460-463.

Blegvad, Britt-Mari (1990) , 'Commercial Relations, contract, and Litigation in Denmark: A Discussion of Macaulay's Theories', 24 Law and Society Review , 397-411.

Bolton, Patrick (1990) , 'Renegotiation and the Dynamics of Contract Design', 34 European Economic Review , 303-310.

Boudreaux, Donald J. and Ekelund, Robert B., Jr. (1987) , 'Regulation as an Exogenous Response to Market Failure: A Neo-Schumpeterian Response', 143 Journal of Institutional and Theoretical Economics , 537-554.

Bowers, James W. and Bigelow, John P. (1996) , The Economics of Relationships and the Limits of the Law , Louisiana State University, Law and Economics Working Group.

Brinig, Margaret F. (1994), 'Status, Contract and Covenant', 79 Cornell Law Review , 1573-1602.

Brinig, Margaret F. (1994), 'Comment on Jana Singer's Alimony and Efficiency', 83 Georgetown Law Journal , 2461-2479.

Brinig, Margaret F. (1996) , 'The Family Franchise, Elderly Parents and their Adult Siblings', ??? Utah Law Review , ???-???.

Brinig, Margaret F. and Carbone, June R. (1988) , 'The Reliance Interest in Marriage and Divorce', 62 Tulane Law Review , 855-905.

Brinig, Margaret F. and Crafton, Steven M. (1994) , 'Marriage and Opportunism', 23 Journal of Legal Studies , 869-894.

Broadman, Harry G. and Toman, Michael A. (1986) , 'Non-Price Provisions in Long-Term Natural Gas Contracts', 62 Land Economics , 111-118.

Butler, Henry N. and Baysinger, Barry D. (1983) , 'Vertical Restraints of Trade as Contractual Integration: a Synthesis of Relational Contracting Theory, Transaction-Cost Economics and Organization Theory', 32 Emory Law Journal , 1009-1109.

Campbell, David (1990) , 'The Social Theory of Relational Contract: Macneil as the Modern Proudhon', 18 International Journal of the Sociology of Law , 75-95.

Campbell, David (1992) , 'The Undeath of Contract: A Study in the Degeneration of a Research Programme', 22 The Hong Kong Law Journal , 20-47.

Campbell, David (1996) , 'The Relational Constitution of the Discrete Contract', in Campbell, David and Vincent-Jones, Peter (eds.), Contract and Economic Organisation: Socio-legal Initiatives , Aldershot, Dartmouth, 40-66.

Campbell, David (1997), 'Socio-legal Analysis of the Law of Contract in the U.K.', in Thomas, Philip A. (ed.), Socio-legal Studies , Aldershot, Dartmouth, 239-278.

Campbell, David (1997), 'The Relational Constitution of Contract and the Limits of 'Economics': Kenneth Arrow on the Social Background of Markets', in Deakin, Simon and Michie, Jonathan (eds.), Contracts, Co-operation and Competition: Studies in Economics, Management and Law , Oxford, Oxford University Press.

Campbell, David (1997), 'Law and Economics and Its Relationship to Sociology', in Tomasic, Roman (ed.), The Sociology of Law, second edition , London, Sage.

Campbell, David and Clay, Susan (1995) , Long-Term Contracting: A Research Bibliography and Review of the Literature , Oxford, Centre for Socio-Legal Studies.

Campbell, David and Harris, Donald R. (1993) , 'Flexibility in Long-term Contractual Relationships: The Role of Co-operation', 20 Journal of Law and Society , 166-191.

Campbell, David and Vincent-Jones, Peter (1997) , Contract and Economic Organisation: Socio-legal Initiatives , Aldershot, Dartmouth.

Canes, Michael E. and Norman, Donald A. (1984) , 'Long-term Contracts and Market Forces in the Natural Gas Market', 10(1) Journal of Energy and Development , 73-96.

Carbone, June R. and Brinig, Margaret F. (1991) , 'Rethinking Marriage: Feminist Ideology, Economic Change, and Divorce Reform', 65 Tulane Law Review , 954-1010.

Chiappori, P.A. and Macho-Stadler, I. (1990) , 'Contrats de travail repetes: la memoire (Repeated Labour Contracts:The Memory)', 17(1) Annales d'Economie et de Statistique , 47-70.

Chiappori, P.A., Macho-Stadler, I., Rey, P. and Salanie, B. (1994) , 'Repeated Moral Hazard: the Role of Memory, Commitment, and the Access to Credit Markets', 38 European Economic Review , 1527-1553.

Chisholm, Darlene C. (1993) , 'Asset Specificity and Long-Term Contracts: The Case of the Motion-Pictures Industry', 19 Eastern Economic Journal , 143-155.

Cooter, Robert (1996) , The Rule of State Law and the Rule-of-Law State: Economic Analysis of the Legal Foundations of Development , Annual World Bank Conference on Development Economics.

Cooter, Robert and Ulen, Thomas S. (1996) , Law and Economics, 2nd edition , Addison-Wesley.

Craswell, Richard (1993) , 'The Relational Move: Some Questions from Law and Economics', 3 Southern California Interdisciplinary Law Journal , 91-114.

Craswell, Richard and Schwartz, Alan (1994) , Foundation of Contract Law , Oxford, Oxford University Press.

Crawford, Vincent P. (1988) , 'Long-Term Relationships Governed by Short-Term Contracts', 78 American Economic Review , 485-499.

Crémer, Jacques (1984) , 'On the Economics of Repeat Buying', 15 Rand Journal of Economics , 396-403.

Crew, Michael A. (1988) , 'Equity, Opportunism and the Design of Contractual Relations: Comment', 144 Journal of Institutional and Theoretical Economics , 196-199.

Crocker, Keith J. and Lyon, Thomas P. (1994) , 'What do Facilitating Practices Facilitate? An Empirical Investigation of Most Favored Nation Clauses in Natural Gas Contracts', 37 Journal of Law and Economics , 297-322.

Crocker, Keith J. and Masten, Scott E. (1988) , 'Mitigating Contractual Hazards: Unilateral Options and Contract Length', 19 Rand Journal of Economics , 327-343.

Crocker, Keith J. and Masten, Scott E. (1991) , 'Pretia ex Machina? Prices and Process in Long-Term Contracts', 34 Journal of Law and Economics , 69-99.

Crystal, Nathan M. (1988) , 'An Empirical View of Relational Contracts under Article Two of the Uniform Commercial Code', Annual Survey of American Law , 293-306.

Cukierman, Alex and Shiffer, Zalman F. (1976) , 'Contracting for Optimal Delivery Time in Long-Term Projects', 7 Bell Journal of Economics , 132-149.

Daintith, Terence C. (1987) , 'Oprettelse og anvendelse af langfristede kontrakter (The Creation and Use of Longterm Contracts)', in Blegvad, Britt-Mari & Collin, Finn (eds.), Virksomheden mellem ¢konomi og jura .

Deakin, Simon, Lane, C. and Wilkinson, F. (1994) , 'Trust' or Law? Towards an Integrated Theory of Contractual Relations between Firms', 21 Journal of Law and Society , 329-349.

Dekel, Eddie, Lipman, B. L. and Rustichini, Aldo (1998) , 'Recent Developments in Modeling Unforeseen Contingencies', 42 European Economic Review , 523-542.

Dewatripont, Mathias (1989) , 'Renegotiation and Information Revelation over Time: The Case of Optimal Labor Contracts', 103 Quarterly Journal of Economics , 589-619.

Dnes, Antony W. (1992), 'Franchising', in Eatwell, John, Milgate, Murray and Newman, Peter (eds.), The New Palgrave Dictionary of Money and Finance , London , Macmillan.

Dnes, Antony W. (1992), ''Unfair' Practices and Hostages in Franchise Contracts', 148 Journal of Institutional and Theoretical Economics , 484-504.

Dnes, Antony W. (1993) , 'A Case-Study Analysis of Franchise Contracts', 22 Journal of Legal Studies , 367-393.

Dnes, Antony W. (1995) , 'The Law and Economics of Contract Modifications : the Case of Williams v. Roffey', 15 International Review of Law and Economics , 225-240.

Dnes, Antony W. (1996) , 'The Economic Analysis of Franchise Contracts', 152 Journal of Institutional and Theoretical Economics , 297-324.

Dnes, Antony W. and Popovic, M. (1988) , 'Some Case-Study Results on Contracting Practices among Yugoslavian Self-managed firms', 15 Journal of Industrial Affairs , 23-27.

Doberstyn, Gary H. (1988) , 'A conceptual approach to negotiating relational contracts for the small business client', 36 Cleveland State Law Review , 541-558.

Dye, Richard F. (1985) , 'Costly Contract Contingencies', 26 International Economic Review , 233-250.

Eger, Thomas (1992) , 'Eine ökonomische Analyse der Zulieferbeziehungen in der Automobilindustrie (An economic analysis of the relations between suppliers and manufacturers in automotive industry)', in Nagel, Bernhard, EG-Wettbewerbsrecht und Zulieferbeziehungen in der Automobilindustrie, Gutachten im Auftrag der EG-Kommission, Generaldirektion Wettbewerb (IV) , Brussel, 1-35.

Eger, Thomas (1995) , Eine ökonomische Analyse von Langzeitverträgen (An Economic Analysis of Long-Term-Contracts) , Marburg, Metropolis, 263 p.

Eisenberg, Melvin Aron (1995) , 'Relational Contracts', in Beatson, Jack and Friedmann, Daniel (eds.), Good Faith and Fault in Contract Law , Oxford, Clarendon.

Ekelund, Robert B., Jr. and Higgins, Richard S. (1982) , 'Capital Fixity, Innovations, and Long-Term Contracting: An Intertemporal Economic Theory', 72 American Economic Review , 32-46.

Esser, John P. (1996) , 'Institutionalizing Industry: The Changing Form of Contract', 21 Law and Social Inquiry , 593-629.

Feinman, Jay M. (1993) , 'Relational contract and default rules', 3 Southern California Interdisciplinary Law Journal , 43-58.

Frech, H. Edward III and Comanor, William S. (1985) , 'The Competitive Effects of Vertical Agreements', 75(3) American Economic Review , 539-546. Reprinted in Journal of Reprints of Antitrust Law and Economics, vol. 10 (1).

Frech, H. Edward III and Comanor, William S. (1987) , 'The Competitive Effects of Vertical Agreements: Reply', 77(5) American Economic Review , 1069-1072.

Frech, H. Edward III and Decanio, Stephen J. (1993) , 'Vertical Contracts: A Natural Experiment in Gas Pipeline Regulation', 149 Journal of Institutional and Theoretical Economics , 370-392.

Frech, H. Edward III and Springer, Robert F. (1986) , 'Deterring Fraud: The Role of Resale Price Maintenance', 59(3) Journal of Business , 433-450.

Freixas, X., Guesnerie, Roger and Tirole, Jean (1985) , 'Planning under Incomplete Information and the Ratchet Effect', 52 Review of Economic Studies , 173-191.

Fudenberg, Drew and Maskin, Eric (1986) , 'The Folk Theorem in Repeated Games with Discounting and Incomplete Information', 54 Econometrica , 533-554.

Fudenberg, Drew and Tirole, Jean (1990) , 'Moral Hazard and Renegotiation in Agency Contracts', 58 Econometrica , 1279-1320.

Fudenberg, Drew, Holström, Bengt and Milgrom, P. (1990) , 'Short-Term Contracts and Long-Term Relationships', 51 Journal of Economic Theory , 1-31.

Furubotn, Eirik G. and Richter, Rudolf (eds.) (1991), The New Institutional Economics: A Collection of Articles from the Journal of Institutional and Theoretical Economics , College Station (TX), Texas A & M University Press.

Galassi, Francesco L. (1992) , 'Tuscans and Their Farms: The Economics of Share Tenancy in Fifteenth Century Florence', 9 Rivista di Storia Economica , 77-94.

Gambetta, Diego (ed.) (1988), Trust: Making and Breaking Cooperative Relations , Oxford, Blackwell, 246 p.

Gebhard, Joachim (1985) , Finanzierungsleasing über Mobilien - Versuch einer Analyse eines expandierenden Finanzmarktes (Financial leasing - An analysis of an expanding capital market) , Wiesbaden, Gabler.

Geddes, R. Richard (1994) , 'Privatization and Contracts in U.S. Electric Utilities', in X (ed.), Private Power in the Pacific , Pacific Economic Cooperation Council, Minerals and Energy Forum, 11-24.

Geddes, R. Richard and Crowley, Peter T. (1994) , 'Agency Costs and Governance in the United States Postal Service', in Sidak, Gregory J. (ed.), Governing the Postal Service , Washington, American Enterprise Institute for Public Policy Research.

Gillette, Clayton P. (1985) , 'Commercial Rationality and the Duty to Adjust Long-Term Contracts', 69 Minnesota Law Review , 521 ff.

Gillette, Clayton P. (1990) , 'Commercial Relationships And The Selection Of Default Rules For Remote Risks', 19 Journal of Legal Studies , 535-581.

Goetz, Charles J. and Scott, Robert E. (1981) , 'Principles of Relational Contracts', 67 Virginia Law Review , 1089-1150.

Goldberg, Victor P. (1976), 'Toward an Expanded Economic Theory of Contract', 10 Journal of Economic Issues , 45-61. Reprinted in Samuels, Warren J. (Ed.), The Chicago School of Political Reprinted inEconomy, East Lansing, Michigan: Division of Research, Graduate School of Business Administration, Michigan State University, l976, p. 259-75.

Goldberg, Victor P. (1976), 'Regulation and Administered Contracts', 7 Bell Journal of Economics , 426-448. Reprinted in Pierce, Richard (Ed.), The Economics of Regulation: Cases and Materials , Cincinnati, Anderson Publishing, 1994.

Goldberg, Victor P. (1977) , 'Competitive Bidding and the Production of Pre-contract Information', 8 Bell Journal of Economics , 250-261.

Goldberg, Victor P. (1979) , 'Law and Economics of Vertical Restrictions: A Relational Perspective', 58 Texas Law Review , 91-129.

Goldberg, Victor P. (1980), 'Bridges Over Contested Terrain: Exploring the Radical Account of the Employment Relationship', 1 Journal of Economic Behavior and Organization , 249-274.

Goldberg, Victor P. (1980), 'Relational Exchange: Economics and Complex Contracts', 23 American Behavioral Scientist , 337-352. Reprinted in Putterman (Ed.), The Economic Nature of the Firm: A Reader , New York, Cambridge University Press, 1986.

Goldberg, Victor P. (1981) , 'Pigou on Complex Contracts and Welfare Economics', 3 Research in Law and Economics , 39-51.

Goldberg, Victor P. (1984) , 'A Relational Exchange Perspective on the Employment Relationship', in Stephen, Frank H. (ed.), Firms, Organization and Labour: Approaches to the Economics of Work Organization , London, MacMillan, 127-145.

Goldberg, Victor P. (1985a) , 'Relational Exchange, Contract Law, and the Boomer Problem', 141 Journal of Institutional and Theoretical Economics , 570-575.

Goldberg, Victor P. (1985b) , 'Price Adjustment in Long-Term Contracts', Wisconsin Law Review , 527-543. Reprinted in Speidel, Summers and White, Commercial Law: Teaching Materials, fourth edition, 1987.

Goldberg, Victor P. and Erickson, John R. (1987) , 'Quantity and Price Adjustments in Long-Term Contracts: A Case Study of Petroleum Coke', 30 Journal of Law and Economics , 369-398.

Gordon, Robert W. (1985) , 'Macaulay, Macneil, and the Discovery of Solidarity and Power in Contract Law', Wisconsin Law Review , 565-579.

Gottlieb, Gidon (1983) , 'Relationism: Legal Theory for a Relational Society', 50 University of Chicago Law Review , 567-612.

Grandy, Christopher (1989) , 'Can Government Be Trusted to Keep Its Part of a Social Contract?: New Jersey and the Railroads, 1825-1888', 5 Journal of Law, Economics, and Organization , 249-269.

Greif, Avner (1989) , 'Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders', 49 Journal of Economic History , 857-882.

Greif, Avner (1992) , 'Institutions and International Trade: Lessons from the Commercial Revolution', 82 American Economic Review , 128-133.

Greif, Avner (1993) , 'Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition', 83 American Economic Review , 525-548.

Greif, Avner (1994), 'Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies', 102 Journal of Political Economy , 912-950.

Greif, Avner (1994), 'On the Political Foundations of the Late Medieval Commercial Revolution: Genoa during the Twelfth and Thirteenth Centuries', 54 Journal of Economic History , 271-287.

Greif, Avner (1995) , 'Political Organizations, Social Structure, and Institutional Success: Reflections from Genoa and Venice during the Commercial Revolution', 151 Journal of Institutional and Theoretical Economics , 734-740.

Greif, Avner (1996) , Contracting, Enforcement, and Efficiency: Economics Beyond the law , Annual World Bank Conference on Development Economics.

Greif, Avner, Milgrom, P. and Weingast, B. (1994) , 'Coordination, Commitment, and Enforcement: The Case of the Merchant Guild', 102 Journal of Political Economy , 745-776.

Grossekettler, Heinz (1978) , 'Der Fall 'Deutsche SB-Kauf kontra adidas'. Volkswirtschaftliche Analyse einer Liefervereinigung (Economic Analysis of a Supply Relation)', 9 Wettbewerb in Recht und Praxis , 619-634.

Grossekettler, Heinz (1981) , 'Die gesamtwirtschaftliche Problematik vertraglicher Vertriebssysteme (The Economic Impact of Contractual Supply Systems)', in Ahlert, D. (ed.), Vertragliche Vertriebssysteme zwischen Industrie und Handel, Grundzüge einer betriebswirtschaftlichen, rechtlichen und volkswirtschaftlichen Beurteilung , Wiesbaden, Gabler, 225-314.

Grossman, Sanford J. and Hart, Oliver D. (1986) , 'The Cost and Benefit of Ownership: A Theory of Vertical and Lateral Integration', 94 Journal of Political Economy , 691-719.

Grout, Paul (1984) , 'Investment and Wages in the Absence of Binding Contracts: a Nash Bargaining Approach', 52 Econometrica , 449-460.

Hackett, Steven C. (1994) , 'Is Relational Exchange Possible in the Absence of Reputations and Repeated Contract?', 10 Journal of Law, Economics, and Organization , 360-389.

Hadfield, Gilliam K. (1990) , 'Problematic Relations: Franchising and the Law of Incomplete Contracts', 42 Stanford Law Review , 927-992.

Hadfield, Gilliam K. (1994) , 'Judicial Competence and the Interpretation of Incomplete Contracts', 23 Journal of Legal Studies , 159-184.

Hansmann, Henry B. and Kraakman, Reinier H. (1992) , 'Hands-Tying Contracts: Book Publishing, Venture Capital Financing, and Secured Debt', 8 Journal of Law, Economics, and Organization , 628-655.

Harbison, John E. (1991) , 'Hard times in the softwoods: contract terms, performance, and relational interests in national forest timber sales', 21 Environmental Law , 863-909.

Harris, Milton and Holmström, Bengt (1987) , 'On the Duration of Agreements', 28 International Economic Review , 389-406.

Hart, O. (1995) , Firms Contracts and Financial Structure , Oxford, Clarendon.

Hart, Oliver D. (1987) , 'Incomplete Contracts', in Eatwell, John, Milgate, Murray and Newman, Peter (eds.), The New Palgrave: A Dictionary of Economics , London, MacMillan, 752-759.

Hart, Oliver D. and Holmstrom, B. (1987) , 'The Theory of Contracts', in Bewley, T(ed.), Advances in Economic Theory. Fifth World Congress. , Cambridge, Cambridge University Press.

Hart, Oliver D. and Moore, John (1988) , 'Incomplete Contracts and Renegotiation', 56 Econometrica , 755-785.

Hart, Oliver D. and Moore, John H. (1990) , 'Property Rights and the Nature of the Firm', 98 Journal of Political Economy , 1119-1158.

Hart, Oliver D. and Tirole, Jean (1988) , 'Contract Renegotiation and Coasian Dynamics', 55 Review of Economic Studies , 509-540.

Hellwig, Martin F. (1988) , 'Equity, Opportunism, and the Design of Contractual Relations: Comment', 144 Journal of Institutional and Theoretical Economics , 200-207.

Helper, Susan and Levine, David I. (1992) , 'Long Term Supplier Relations and Product Market Structure', 8 Journal of Law, Economics, and Organization , 561-581.

Hermalin, Benjamin E. and Katz, Michael L. (1993) , 'Judicial Modification of Contracts between Sophisticated Parties: A More Complete View of Incomplete Contracts and Their Breach', 9 Journal of Law, Economics, and Organization , 230-255.

Hillman, Robert A. (1987) , 'Court Adjustment of Long-Term Contracts: An analysis under Modern Contract Law', ??? Duke Law Journal , 1-33.

Hirshleifer, Jack (1994) , 'The Dark Side of the Force', 32 Economic Inquiry , 1-10.

Hubbard, R. Glenn and Weiner, Robert J. (1986) , 'Regulation and Long-term Contracting in U.S. Natural Gas Markets', 35 Journal of Industrial Economics , 71-79.

Hubbard, R. Glenn and Weiner, Robert J. (1991) , 'Efficient Contracting and Market Power: Evidence from the U.S. Natural Gas Industry', 34 Journal of Law and Economics , 25-67.

Hubbard, Steven W. (1982) , 'Relief from Burdensome Long-term Contracts: Commercial Impracticability, Frustration of purpose, Mutual Mistake of Fact, and Equitable Adjustment', 47 Missouri Law Review , 79-111.

Huberman, Gur and Kahn, Charles M. (1988) , 'Strategic Renegotiation', 28 Economic Letters , 117-121.

Huberman, Gur and Kahn, Charles W. (1988) , 'Limited Contract Enforcement and Strategic Renegotiation', 78 American Economic Review , 471-484.

Hviid, Morten (1996) , 'Relational Contracts and Repeated Games', in Campbell, David and Vincent-Jones, Peter (eds.), Contract and Economic Organisation: Socio-legal Initiatives , Aldershot, Dartmouth.

Hviid, Morten (1998) , 'Relational Contracts, Repeated Interactions and Contract Modification', 5 European Journal of Law and Economics , 179-194.

J. Mark Ramseyer (1991) , 'Legal Rules in Repeated Deals: Banking in the Shadow of Defection in Japan', 20 Journal of Legal Studies , 91 ff.

John Shepard Wiley, Jr., Eric Rasmusen and Ramseyer, Mark J. (1990) , 'The Leasing Monopolist', 37 UCLA Law Review , 693 ff.

Johnson, Alex M., Jr. (1988) , 'Correctly Interpreting Long-Term Leases Pursuant to Modern Contract Law: Toward a Theory of Relational Leases', 74 Virginia Law Review , 751-808.

Jolls, Christine (1997) , 'Contracts as Bilateral Commitments: A New Perspective on contract Modification', 26 Journal of Legal Studies , 203-237.

Joskow, Paul L. (1985a) , 'Vertical Integration and Long-Term Contracts: The Case of Coal-Burning Electric Generating Plants', 1 Journal of Law, Economics, and Organization , 33-80.

Joskow, Paul L. (1985b) , 'Long Term Vertical Relationships and the Study of Industrial Organization and Government Regulati on', 141 Journal of Institutional and Theoretical Economics , 586-593.

Joskow, Paul L. (1987) , 'Contract Duration and Relationship- Specific Investments: Empirical Evidence from Coal Markets', 77 American Economic Review , 168-185.

Joskow, Paul L. (1988) , 'Price Adjustment in Long-Term Contracts: The Case of Coal', 31 Journal of Law and Economics , 47-83.

Joskow, Paul L. (1990) , 'The Performance of Long-term Contracts: Further Evidence from Coal Markets', 21 Rand Journal of Economics , 251-274.

Kahan, Marcel and Bruce Tuckman (1996) , 'Private versus Public Lending: Evidence from Covenants', in Finnerty, John D. and Martin, S. Fridson (eds.), The Yearbook of Fixed Income Investing 1995 , 253-274.

Kaufmann, Patrick J. and Stern, Louis W. (1988) , 'Relational Exchange Norms, Perceptions of Unfairness, and Retained Hostility in Commercial Litigation', 32 Journal of Conflict Resolution , 534-552.

Kenworthy, Lane, Macaulay, Stewart and Rogers, Joel (1996) , 'The More Thing Change ...: Business Litigation and Governance in the American Automobile Industry', 21 Law and Social Inquiry , 631-678.

Klein, Benjamin (1996) , 'Why Hold Ups Occur: The Self Enforcing Range of Contractual Relationships', 34 Economic Inquiry , 444-463.

Klein, Benjamin, Crawford, Robert G. and Alchian, Armen A. (1978) , 'Vertical Integration, Appropriable Rents, and the Competitive Contracting Process', 21 Journal of Law and Economics , 297-326.

Koboldt, Christian (1991) , 'Kommentar on Schanze, Stellvertretung und ökonomische Agentur-Theorie', in Ott, Claus and Schäfer, Hans-Bernd (eds.), Ökonomische Probleme des Zivilrechts , Berlin, Springer, 76-86.

Kranton, Rachel E. (1996), 'Reciprocal Exchange: A Self-Sustaining System', 86 American Economic Review , 830-851.

Kranton, Rachel E. (1996), 'The Formation of Cooperative Relationships', 12 Journal of Law, Economics, and Organization , 214-233.

Kreps, David M. (1990) , 'Corporate Culture and Economic Theory', in Alt, J. and Shepsle, K., (eds.), Perspectives on Politive Political Economy , Cambridge University Press.

Kronman, Anthony T. (1985) , 'Contract Law and The State of Nature', 1 Journal of Law, Economics, and Organization , 32-35.

Laffont, Jean- Jacques and Tirole, Jean (1987) , 'Comparative Static of the Optimal Dynamic Incentive Contract', 31 European Economic Review , 901-926.

Laffont, Jean- Jacques and Tirole, Jean (1990) , 'Adverse Selection and Renegotiation in Procurement', 75 Review of Economic Studies , 597-626.

Lafontaine, F. (1992) , 'Agency Theory and Franchising: Some Empirical Results', 23 Rand Journal of Economics , 263-283.

Lambert, Richard A. (1983) , 'Long-Term Contracts and Moral Hazard', 14 Bell Journal of Economics , 441-451.

Lawrence, William H. (1989) , 'Lender Control Liability: An Analytical Model Illustrated with Applications to the Relational Theory of Secured Financing', 62 Southern California Law Review , 1387-1447.

Levmore, Saul and Kanda, Hideki (1994) , 'Explaining Creditor Priorities', 80 Virginia Law Review , 2103-2154.

Lewis, Tab, Lindsey, R. and Ware, R. (1986) , 'Long-Term Bilateral Monopoly: The Case of an Exhaustible Resource', 17 Rand Journal of Economics , 89-104.

Lewis, Tracy R. (1986) , 'Reputation and Contractual Performance in Long-Term Projects', 17 Rand Journal of Economics , 141-157.

Lindenberg, Siegwart and De Vos, Henk (1985) , 'The Limits of Solidarity: Relational Contracting in Perspective and Some Criticism of Traditional Sociology', 141 Journal of Institutional and Theoretical Economics , 558-569.

Linzer, Peter (1988) , 'Uncontracts: Context, Contorts and the Relational Approach', Annual Survey of American Law , 139-198.

Lyons, B.R. (1994) , 'Contracts and Specific Investment: An Empirical Test of Transaction Cost Theory', 3 Journal of Economics and Management Strategy , 257-278.

Lyons, B.R. (1995) , 'Specific Investment, Economies of Scale, and the Make or Buy Decision: A Test of Transaction Cost Theory', 26 Journal of Economic Behavior and Organization , 431-443.

Lyons, B.R. (1996) , 'Empirical Relevance of Efficient Contract Theory: Inter-Firm Contracts', 12 Oxford Review of Economic Policy , 27-52.

Lyons, B.R. and Mehta, Judith (1997) , 'Contracts Opportunism and Trust: Self-Interest and Social Orientation', 21 Cambridge Journal of Economics , 239-257.

Ma, C. (1991) , 'Adverse Selection in Dynamic Moral Hazard', 106 Quarterly Journal of Economics , 255-275.

Macario, Francesco (1996) , Adempimento e rinegoziazione nei contratti a lungo termine (Performance and rinegotiation in long-term contracts) , Napoli, Jovene.

Macaulay, Stewart (1963) , 'Non-Contractual Relations in Business: A Preliminary Study', 25 American Sociological Review , 55-70. Reprinted in Goldberg, Victor P. (ed.), Readings in the Economics of Contract Law , Cambridge, Cambridge University Press, 1989, 4-15.

Macaulay, Stewart (1977) , 'Elegant Models, Empirical Pictures and the Complexities of Contract', 11 Law and Society Review , 507-528.

Macaulay, Stewart (1985) , 'An Empirical View of Contract', Wisconsin Law Review , 465-482.

Macho-Stadler, I. and Pérez-Castrillo, J.David (1988) , 'Sobre los compromisos multiperíodo en los modelos de riesgo moral repetido (Multiple period Commitments in Repeated Moral Hazzard Models)', 5 Revista Española de Economía , 143-158.

MacLeod, W. Bentley and Malcomson, James M. (1988) , 'Reputation and Hierarchy in Dynamic Models of Employment', 96 Journal of Political Economy , 832-854.

MacNeil, Ian R. (1974) , 'The Many Futures of Contracts', 47 Southern California Law Review , 691-816.

MacNeil, Ian R. (1975) , 'A Primer of Contract Planning', 48 Southern California Law Review , 627-704.

MacNeil, Ian R. (1978) , 'Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical, and Relational Contract Law', 72 Northwestern University Law Review , 854-905.

MacNeil, Ian R. (1980), 'Power, Contract and the Economic Model', 14 Journal of Economic Issues , 909-923.

MacNeil, Ian R. (1980), The New Social Contract: An Inquiry Into Modern Contractual Relations , New Haven, Yale University Press, 164 p.

MacNeil, Ian R. (1981a) , 'Economic Analysis of Contractual Relations', in Burrows, Paul and Veljanovski, Cento G. (eds.), The Economic Approach to Law , London, Butterworths, 61-92.

MacNeil, Ian R. (1981b) , 'Economic Analysis of Contractual Relations: Its Shortfalls and the Need for a >Rich Classificatory Apparatus', 75 Northwestern University Law Review , 1018-1063.

MacNeil, Ian R. (1983) , 'Values in Contract: Internal and External', 78 Northwestern University Law Review , 340-418.

MacNeil, Ian R. (1985), 'Relational Contract: What We Do and Do Not Know', Wisconsin Law Review , 483-525.

MacNeil, Ian R. (1985), 'Reflections on Relational Contract', 141 Journal of Institutional and Theoretical Economics , 541-546.

MacNeil, Ian R. (1986) , 'Exchange Revisited: Individual Utility and Social Solidarity', 96 Ethics , 567-593.

MacNeil, Ian R. (1987a) , 'Relational Contract Theory as Sociology: A Reply', 143 Journal of Institutional and Theoretical Economics , 272-290.

MacNeil, Ian R. (1987b) , 'Barriers to the Idea of Relational Contracts (The Complex Long-Term Contract. Structures and International Arbitration)', in Nicklisch, Fritz (ed.), Der Komplexe Langzeitvertrag. Strukturen und Internationale Schiedsgerichtsbarkeit. , Heidelberg, Müller Juristischer Verlag, 31-46.

Malcomson, James M. (1997) , 'Contracts, Hold-Up, and Labor Markets', 35 Journal of Economic Literature , 1916-1957.

Malcomson, James M. and Spinnewyn, F. (1988) , 'The Multiperiod Principal Agent Problem', 55 Review of Economic Studies , 391-407.

Masten, Scott E. and Crocker, Keith J. (1985) , 'Efficient Adaptation in Long-Term Contracts: Take-or-Pay Provisions for Natural Gas', 75 American Economic Review , 1083-1093.

McKendrick, Ewan (1995) , 'The Regulation of Long-Term Contracts in English Law', in Beatson, Jack and Friedmann, Daniel (eds.), Good Faith and Fault in Contract Law , Oxford, Clarendon.

Milgrom, Paul R., North, Douglass C. and Weingast, Barry R. (1990) , 'The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges, and the Champagne Fairs', 2 Economics and Politics , 1-23.

Milhaupt, Curtis, J. (1996) , 'A relational Theory of Japanese Corporate Governance: Contract, Culture, and the Rule of Law', 37 Harvard International Law Review , 3-64.

Mulherin, J. Harold (1986) , 'Complexity in Long-Term Contracts: An Analysis of Natural Gas Contractual Provisions', 2 Journal of Law, Economics, and Organization , 105-117.

Muller Graff, Peter Christian (1988) , 'Franchising: A Case of Long-term Contracts', 144 Journal of Institutional and Theoretical Economics , 122-144.

Mullock, Philip (1983) , 'The New Paradigm of Contract: A Hermeneutical Approach', 17 Valparaiso University Law Review , 677-704.

Nagel, Bernhard (1988) , 'Der Lieferant on line - unternehmensrechtliche Probleme der Just-in-Time-Produktion am Beispiel der Automobilindustrie (Delivery online. Legal Problems of Just-in-Time Production in the Automobile SectorDelivery online. Legal Problems of Just-in-Time Production in the Automobile Sector)', DB , 2291-2294.

Nagel, Bernhard (1991) , 'Schuldrechtliche Probleme bei Just-in-Time-Lieferbeziehungen - dargestellt am Beispiel der Automobilindustrie (Problems with Law of Contract in Just-in-Time Delivery Relations)', DB , 319-326.

Nagel, Bernhard (1992), 'Zulieferbeziehungen der Automobilindustrie und Wettbewerbsrecht der EG (Delivery Relations in the Automobile Industry and the Competition Law of the EG)', Wirtschaft und Wettbewerb , 818-829.

Nagel, Bernhard (1992), EG-Wettbewerbsrecht und Zulieferbeziehungen der Automobilindustrie, Gutachten im Auftrag der EG-Kommission (EU-Competition Law and the Delivery Relations in the Automobile Industry) , Veröffentlichungen der Kommission, Luxemburg und Brüssel, 1992.

Narasimhan, Subha (1986) , 'Of Expectations, Incomplete Contrac ting, and the Bargain Principle', 74 California Law Review , 1123-1202.

Narasimhan, Subha (1989) , 'Relationship or Boundary? Handling Successive Contracts', 77 California Law Review , 1077-1122.

Nicklisch, Fritz (1987) , Der Komplexe Langzeitvertrag. Strukturen und Internationale Schiedsgerichtsbarkeit (The Complex Long-Term Contract. Structures and International Arbitration) , Heidelberg, Müller Juristischer Verlag, 597 p.

Palay, Thomas M. (1984) , 'Comparative Institutional Economics: The Governance of Rail Freight Contracting', 13 Journal of Legal Studies , 265-287.

Palzer, Keith A. (1988) , 'Relational contract theory and sovereign debt', 8 Northwestern Journal of International Law & Business , 727-758.

Pauly, Mark V. (1986) , 'Relational Contracting, Transaction Cost Economics and the Governance of HMOs', 59 Temp. Law Quarterly , 927 ff.

Pauly, Mark V. (1990) , 'The Rational Nonpurchase of Long-Term Insurance', 98 Journal of Political Economy , 153-168.

Pittman, Russell (1992) , 'Specific Investments, Contracts, and Opportunism: The Evolution of Railroad Sidetrack Agreements', 34 Journal of Law and Economics , 565-589.

Polinsky, A. Mitchell (1987) , 'Fixed Price versus Spot Price Contracts: A Study in Risk Allocation', 3(1) Journal of Law, Economics, and Organization , 27-46.

Polinsky, Mitchell A. (1987) , 'Fixed Price versus Spot Price Contracts: A Study in Risk Allocation', 3 Journal of Law, Economics, and Organization , 27-46.

Posner, Eric A. (1997) , 'Altruism, Trust, and Status in the Law of Gifts and Gratuitous Promises', (forth.) Wisconsin Law Review .

Ramseyer, J. (1994) , Mark, 'Explicit Reasons for Implicit Contracts: The Legal Logic To the Japanese Main Bank System', in Masahiko, Aoki, & Patrick, Hugh T. (ed.), The Japanese Main Bank System: Its Relevance For Developing and Transforming Economies , Oxford, 231 ff.

Ramseyer, J. Mark (1991), 'Indentured Prostitution in Imperial Japan: Credible Commitments in the Commercial Sex Industry', 7 Journal of Law, Economics, and Organization , 89-116.

Ramseyer, J. Mark (1991), 'Legal Rules in Repeated Deals: Banking in the Shadow of Defection in Japan', 20 Journal of Legal Studies , 91-117.

Rey, P. and Salanie, B. (1990) , 'Long-Term, Short-Term and Renegotiation: On the Value of Commitment in Contracting', 58 Econometrica , 597-619.

Rice, Danton B. and Schlueter, Michael A. (1985) , 'Deregulation and natural gas purchase contracts: examination through neoclassical and relational contract theories', 25 Washburn Law Journal , 43-65.

Salanie, B. (1997) , The Economics of Contracts , London, MIT Press.

Schanze, Erich (1989) , Langzeitverträge im Spannungsfeld von Vertrags-, Gesellschafts-, Wettbewerbs- und Arbeitsrecht, Symbiotische Bezugs- und Absatzsysteme, Vorlage für die Tagung für Rechtsvergleichung Würzburg 1989 (Long-Term Contracts between Contract, Corporation, Competition, and Labor Law) , Fachgruppe für Grundlagenforschung, Arbeitssitzung, 14 Sept 1989.

Schanze, Erich (1991) , 'Symbiotic Contracts: Exploring Long-Term Agency Structures between Contract and Corporation', in Joerges, Christian (ed.), Regulating the Franchise Relationship: Comparative and European Aspects , Baden-Baden, Nomos.

Schwab, Stewart J. (1993) , 'Life-Cycle Justice: Accommodating Just Cause and Employment At Will', 92 Michigan Law Review , 8-62.

Schwartz, Alan (1992a) , 'Legal Contract theory and Incomplete Information', in Werin, Lars and Wijkander, Hans (eds.), Contract Economics , Oxford, Blackwell.

Schwartz, Alan (1992b) , 'Relational Contracts in the Courts: An Analysis of Incomplete Agreements and Judicial Strategies', 21 Journal of Legal Studies , 271-318.

Scott, Robert E. (1987a) , 'Risk Distribution and Adjustment in Long-Term Contracts (The Complex Long-Term Contract. Structures and International Arbitration)', in Nicklisch, Fritz (ed.), Der Komplexe Langzeitvertrag. Strukturen und Internationale Schiedsgerichtsbarkeit. , Heidelberg, Müller Juristischer Verlag, 51-100.

Scott, Robert E. (1987b) , 'Conflict and Cooperation in Long-Term Contracts', 75 California Law Review , 2005-2054.

Scott, Robert E. (1990) , 'A Relational Theory of Default Rules for Commercial Contracts', 19 Journal of Legal Studies , 597-616.

Speidel, Richard E. (1981) , 'Court-Imposed Price Adjustements Under Long-Term Supply Contracts', 76 Northwestern University Law Review , 369-422.

Strasser, Kurt A. (1981) , 'Contract's "Many Features" after Death: Unanswered Questions of Scope and Purpose', 32 South Carolina Law Review , 501-546.

Talley, Eric (1994) , 'Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule', 46 Stanford Law Review , 1195-1243.

Trebilcock, Michael J. (1993) , The limits of Freedom of Contract , Harvard University Press.

Triantis, George G. (1992) , 'Contractual Allocation of Unknown Risks: A Critique of the Doctrine of Commercial Impracticability', 42 University of Toronto Law Journal , 450-483.

Triantis, George G. (1993) , 'The Effects of Insolvency and Bankruptcy on Contract Performance and Adjustment', 43 University of Toronto Law Journal , 679-710.

Van Pelt, Mark H. (1985) , 'Introduction', Wisconsin Law Review , 461-463.

Verkerke, J. Hoult (1995) , 'An Empirical Perspective on Indefinite Term Employment Contracts: Resolving the Just Cause Debate', Wisconsin Law Review , 837-918.

Vincent-Jones, Peter (1994) , 'The Limits of Contractual Order in Public Scetor Transacting', 14 Legal Studies , 364 ff.

Whincop, Michael J. (1997) , 'A Relational and Doctrinal Critique of Shareholders' Special Contracts', 19 Sydney Law Review .

Whitford, William C. (1985) , 'Ian Macneil's Contribution to Contracts Scholarship', Wisconsin Law Review , 545-560.

Williamson, Oliver E. (1983) , 'Credible Commitments: Using Hostages to Support Exchange', 73 American Economic Review , 519-540.

Williamson, Oliver E. (1984) , 'Credible Commitments: Further Remarks', 74 American Economic Review , 488-490.

Williamson, Oliver E. (1985) , The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting , New York, Free Press, 450 p.

Williamson, Oliver E. (1989) , Antitrust Economics: Mergers, Contracting and Strategic Behavior , Oxford, Basil Blackwell, 363 p.

Zolt, Eric M. and Berkowitz, Jeffrey I. (1978) , 'An Economic Perspective on the Law of Excessive Profit Recovery', 45 University of Chicago Law Review , 882-905.

Zundel, Michael N. (1982) , 'Equitable Reformation of Long-Term Contracts - The 'New Spirit' of ALCOA', ??? Utah Law Review , 985-1008.

Zupan, Mark A. (1990) , 'Why Nice Guys Finish Last: A Comment on Robert Axelrod's the Evolution of Cooperation', 65(3) Public Choice , 291-293.

Note to Prof. Hviid: please complete the following citations

Following citation in text has no entry in the Bibliography:

Goldberg and Erickson (1982)

Following centries in Bibliography are incomplete:

Brinig, Margaret F. (1996), 'The Family Franchise, Elderly Parents and their Adult Siblings', ??? Utah Law Review , ???-???.

Hillman, Robert A. (1987), 'Court Adjustment of Long-Term Contracts: An analysis under Modern Contract Law', ??? Duke Law Journal , 1-33.

Zundel, Michael N. (1982), 'Equitable Reformation of Long-Term Contracts - The 'New Spirit' of ALCOA', ??? Utah Law Review , 985-1008.

Copyright 1996-98 Morten Hviid