The Relational Costs of Complete Contracts

46 Pages Posted: 26 Jun 2011

Date Written: June 25, 2011

Abstract

Although contracts provide safeguards against risk, they can also signal low expectations for a relationship (e.g., suggesting a prenuptial agreement.) Three studies document how attempts to create more complete contracts, driven by a desire to effectively manage the potential pitfalls in a relationship, can crowd out rapport and undermine trust and cooperation. More specifically, this paper investigates the signaling effects of two aspects of contract completeness, specificity and the number of clauses in the contract. We found that complete contracts act as a signal (Study 1) and reduce relational expectations, subjective satisfaction, and trust (Study 2); they also lead to less cooperative behavior (Study 3). We discuss some of the implications of this paradox.

Suggested Citation

Chou, Eileen Y. and Halevy, Nir and Murnighan, John Keith, The Relational Costs of Complete Contracts (June 25, 2011). IACM 24th Annual Conference Paper, Available at SSRN: https://ssrn.com/abstract=1872569 or http://dx.doi.org/10.2139/ssrn.1872569

Eileen Y. Chou (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Nir Halevy

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

John Keith Murnighan

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Leverone Hall, 360
Evanston, IL 60208
United States
847-467-3566 (Phone)
847-491-8896 (Fax)

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