Relational Contracts and the Value of Loyalty

  title={Relational Contracts and the Value of Loyalty},
  author={Simon Board},
This paper examines how relational contracting affects the pattern of trade across the economy. We suppose a firm (principal) repeatedly chooses among of a set of potential trading partners (agents) under the threat of holdup. The possibility of ex–post opportunism allows agents to collect rents, which act like a fixed cost that the principal must pay when initiating a new relationship. The principal responds by dividing agents into “insiders”, with whom she has previously traded, and… CONTINUE READING

2 Figures & Tables