Relational Adaptation

  title={Relational Adaptation},
  author={George Baker and Robert Gibbons and Kevin J. Murphy},
Economic performance depends crucially on how parties adapt to changing circumstances. We therefore study how the organization of economic activity can facilitate such adaptation. Where spot transactions would produce inefficient adaptation, we ask how governance structures (allocations of control) can facilitate relational contracts that improve on spot adaptation. We show that the optimal governance structure for implementing a given relational contract minimizes the maximum aggregate… CONTINUE READING
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