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<https://discovery.ucl.ac.uk/id/eprint/1406354> <http://purl.org/dc/terms/title> "Forgiveness in Vertical Relationships: Incentive and Termination Effects"^^<http://www.w3.org/2001/XMLSchema#string> .
<https://discovery.ucl.ac.uk/id/eprint/1406354> <http://purl.org/ontology/bibo/abstract> "Two types of contractual solutions have been proposed for resolving incentive conflicts in vertical relationships: formal\r\nand relational (i.e., enforceable or not by third parties). Much is known about the optimal structure of formal contracts,\r\nbut relatively little is known about the structure of relational contracts. We study a core feature of the latter: the conditions\r\nleading to continuation of the relationship, whose prospect gives relational contracts their force. We build a formal model\r\nof a vertical relationship between two parties that endogenizes the choice of the minimum performance necessary for\r\ncontinuation as a function of the values of contractibles, noncontractibles, and outside options. The model highlights a basic\r\ntrade-off between providing strong incentives for the present (incentive effect) and safeguarding relationships for the future\r\n(termination effect). The stable relationships that follow from a more forgiving contract are more important under certain\r\nconditions (when a lot of value is jointly created by exchange partners, i.e., high contractible value, high noncontractible\r\nvalue, or unattractive outside options); however, strong incentives from a less forgiving contract are more important under\r\nother conditions (when a formal contract is insufficient and a relational contract is most important, i.e., high noncontractible\r\nrelative to contractible value). We discuss implications for the choice of governance of interorganizational relationships."^^<http://www.w3.org/2001/XMLSchema#string> .
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