Abstract

http://ssrn.com/abstract=1713667
 
 

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Haggling for Rents, Relational Contracts, and the Theory of the Firm


Oliver Gürtler


University of Bonn - Economic Science Area

October 15, 2010

Schmalenbach Business Review, Vol. 62, pp. 359-377, October 2010

Abstract:     
I analyze how ownership can be structured to minimize the haggling costs due to contractual incompleteness. I model haggling as a contest in which integration gives the integrating party a relative advantage over the integrated party. In a one-period model, this implies that the contest will become more uneven and social waste reduced, making integration the optimal strategy. In the infinitely repeated version of the model, the parties can also enter a relational contract under which each party promises not to engage in haggling. I show that such a contract is less stable under integration, since the integrating party gains much more from deviating than does any party under non-integration.

Number of Pages in PDF File: 19

Keywords: Integration, Non-Integration, Relational Contract, Rent Seeking

JEL Classification: D23, D72, D74, L14, L22

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Date posted: November 25, 2010  

Suggested Citation

Gürtler, Oliver, Haggling for Rents, Relational Contracts, and the Theory of the Firm (October 15, 2010). Schmalenbach Business Review, Vol. 62, pp. 359-377, October 2010. Available at SSRN: http://ssrn.com/abstract=1713667

Contact Information

Oliver Gürtler (Contact Author)
University of Bonn - Economic Science Area ( email )
Adenauerallee 24-42
D-53113 Bonn
Germany
+49 228 739214 (Phone)
+49 228 739210 (Fax)
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