Relational Contracts and Organizational Capabilities

Organization Science, Forthcoming

32 Pages Posted: 9 Aug 2012 Last revised: 10 Aug 2012

See all articles by Robert S. Gibbons

Robert S. Gibbons

Massachusetts Institute of Technology - Sloan School and Department of Economics; National Bureau of Economic Research (NBER)

Rebecca M. Henderson

Harvard Business School; NBER

Date Written: July 18, 2011

Abstract

A large literature identifies unique organizational capabilities as a potent source of competitive advantage, yet our knowledge of why capabilities fail to diffuse more rapidly — particularly in situations in which competitors apparently have strong incentives to adopt them and a well developed understanding of how they work — remains incomplete. In this paper we suggest that competitively significant capabilities often rest on managerial practices that in turn rely on relational contracts (i.e., informal agreements sustained by the shadow of the future). We argue that one of the reasons these practices may be difficult to copy is that effective relational contracts must solve the twin problems of credibility and clarity, and that while credibility might in principle be instantly acquired, clarity may take time to develop and may interact with credibility in complex ways, so that relational contracts may often be difficult to build.

Keywords: Relational contracts, Organizational Capabiliy

JEL Classification: D2

Suggested Citation

Gibbons, Robert S. and Henderson, Rebecca M., Relational Contracts and Organizational Capabilities (July 18, 2011). Organization Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2126802

Robert S. Gibbons

Massachusetts Institute of Technology - Sloan School and Department of Economics ( email )

E52-432
MIT
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United States
617-253-0283 (Phone)
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National Bureau of Economic Research (NBER)

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Rebecca M. Henderson (Contact Author)

Harvard Business School ( email )

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United States

NBER

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Cambridge, MA 02138
United States

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