Managing Complex Contracts: A Theoretical Approach

Trevor L. Brown; Matthew Potoski; David Van Slyke

doi:10.1093/jopart/muv004

Managing Complex Contracts: A Theoretical Approach

Trevor L. Brown, Matthew Potoski, David Van Slyke

Department of Public Administration

Research output: Contribution to journal › Article › peer-review

107 Scopus citations

Abstract

When a product is difficult to specify in a contract and requires specialized investments for a market exchange, the buyer and seller can find themselves locked into a mutually dependent relationship in which both win-win and lose-lose outcomes are possible. This paper presents a theory of such complex contracting in the public sector and identifies the conditions that increase the likelihood of win-win outcomes for the buyer and the seller. Rules that allow parties to incentivize cooperative behavior increase the chances of a winning outcome. Relationships can promote cooperation if structured to incorporate repeated play and external reputations. Finally, contract success is contingent on mutual understanding between the two parties. Both the buyer and the seller need to understand the rules and the relationship in the same way in order for the exchange to deliver a win-win.

Original language	English (US)
Pages (from-to)	294-308
Number of pages	15
Journal	Journal of Public Administration Research and Theory
Volume	26
Issue number	2
DOIs	https://doi.org/10.1093/jopart/muv004
State	Published - Apr 1 2016

ASJC Scopus subject areas

Sociology and Political Science
Public Administration
Marketing

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Managing Complex Contracts: A Theoretical Approach

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