Antecedents of Intentionally Incomplete Inter-Firm Contracts
25 Pages Posted: 23 Aug 2011
Date Written: August 22, 2011
We investigate (1) whether firms deliberately write incomplete contracts, and (2) if so, under which conditions. A better understanding of this phenomenon is important, because research shows that incomplete contracts can yield higher results than fully specified ones. We investigate these questions using the grounded theory methodology developed by Glaser and Strauss, and specifically the Straussarian version. We conducted thirty-seven semi-structured in-depth interviews with executives from different industries who negotiate contracts. We found that, given a confident view of the world, executives are willing to write incomplete inter-firm contracts under the following circumstances: a) they have a confident attitude towards their environment, b) they trust their contracting partner, c) the power relationship between the companies is equal, and d) the value of the contract is relatively low, i.e., of minor strategic importance.
Keywords: cooperation, grounded theory, trust, indefiniteness, intentionally incomplete contracts, non-verifiable contracts, power balance, qualitative research
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