The Effect of Repeated Interaction on Contract Choice: Evidence from Offshore Drilling

Posted: 19 Nov 2003

See all articles by Kenneth S. Corts

Kenneth S. Corts

University of Toronto - Rotman School of Management

Jasjit Singh

INSEAD; INSEAD

Multiple version iconThere are 2 versions of this paper

Abstract

We argue that repeated interaction and high-powered formal contracts can be either substitutes or complements, depending on the relative impact of repeated interaction on incentive problems and contracting costs. In the offshore drilling industry, we find that oil and gas companies are less likely to choose fixed-price contracts as the frequency of their interaction with a driller increases. This supports the conclusion that repeated interaction and high-powered formal contracts are substitutes in this setting, indicating that repeated interaction reduces incentive problems more than contracting costs. In addition, we find that using instrumental variables to account for the endogenous matching of drillers to projects strengthens our results.

Keywords: contracts, repeated interaction, relationships, transaction costs, incentives

JEL Classification: L14, L22, L71

Suggested Citation

Corts, Kenneth S. and Singh, Jasjit and Singh, Jasjit, The Effect of Repeated Interaction on Contract Choice: Evidence from Offshore Drilling. The Journal of Law, Economics, and Organization, Vol. 20, No. 1, pp. 230-260, 2004, Available at SSRN: https://ssrn.com/abstract=469981

Kenneth S. Corts (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Jasjit Singh

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore
+65 67995341 (Phone)

HOME PAGE: http://faculty.insead.edu/singhj/

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,054
PlumX Metrics