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Asymmetric contracting capabilities and the entropic effect of learning to contract

Hallberg, Niklas Lars LU (2024)
Abstract
How do contracting capabilities affect contractual preferences and economic institutions? According to the learning to contract literature, contractual parties over time learn to discover more efficient ways of governing exchange relationships, thereby reducing transaction costs when governance structures are gradually better aligned with transaction attributes. However, the introduction of learning dynamics into transaction cost economics is also associated with an unexplored dark side. Parties in contractual relationships are likely to develop asymmetric contracting capabilities because of differential initial endowments and path-dependency in learning processes. We argue that asymmetric contracting capabilities function as appropriation... (More)
How do contracting capabilities affect contractual preferences and economic institutions? According to the learning to contract literature, contractual parties over time learn to discover more efficient ways of governing exchange relationships, thereby reducing transaction costs when governance structures are gradually better aligned with transaction attributes. However, the introduction of learning dynamics into transaction cost economics is also associated with an unexplored dark side. Parties in contractual relationships are likely to develop asymmetric contracting capabilities because of differential initial endowments and path-dependency in learning processes. We argue that asymmetric contracting capabilities function as appropriation factors that lead to a shift in the expected distribution of payoffs between the contracting parties, which affect incentive alignment and the parties’ preferences over different contractual forms. A counterintuitive implication of the argument is that strong contractual learning dynamics may lead to exacerbated incentive conflict and less stable economic institutions. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Other contribution
publication status
unpublished
subject
keywords
Asymmetric Contracting Capabilities, Institutional Change, Learning to Contract, Organizational Capabilities, Transaction Cost Economics
pages
47 pages
language
English
LU publication?
yes
id
37502400-40d4-4122-8551-6f2c6de1d751
date added to LUP
2024-03-14 11:16:41
date last changed
2024-03-15 16:24:19
@misc{37502400-40d4-4122-8551-6f2c6de1d751,
  abstract     = {{How do contracting capabilities affect contractual preferences and economic institutions? According to the learning to contract literature, contractual parties over time learn to discover more efficient ways of governing exchange relationships, thereby reducing transaction costs when governance structures are gradually better aligned with transaction attributes. However, the introduction of learning dynamics into transaction cost economics is also associated with an unexplored dark side. Parties in contractual relationships are likely to develop asymmetric contracting capabilities because of differential initial endowments and path-dependency in learning processes. We argue that asymmetric contracting capabilities function as appropriation factors that lead to a shift in the expected distribution of payoffs between the contracting parties, which affect incentive alignment and the parties’ preferences over different contractual forms. A counterintuitive implication of the argument is that strong contractual learning dynamics may lead to exacerbated incentive conflict and less stable economic institutions.}},
  author       = {{Hallberg, Niklas Lars}},
  keywords     = {{Asymmetric Contracting Capabilities, Institutional Change, Learning to Contract, Organizational Capabilities, Transaction Cost Economics}},
  language     = {{eng}},
  title        = {{Asymmetric contracting capabilities and the entropic effect of learning to contract}},
  url          = {{https://lup.lub.lu.se/search/files/177213939/ACCTOF.pdf}},
  year         = {{2024}},
}