Cooperation Contracts between Embedded Firms

Abstract

Successful inter-firm cooperations require that the participating partners mitigate potential opportunistic behaviour. Contractual commitments are one management mechanism to achieve stable mutual cooperation. However, the impossibility in designing complete, explicit and easily enforceable contracts restricts their efficacy as a management mechanism. Mechanisms based on the social embeddedness of the partners can form a viable alternative and compliment for contracts. Hence, the usage of contractual commitments is explained by combining transaction cost economic reasoning with arguments on the social embeddedness of economic transactions. Finally, the derived hypotheses are tested on a data-set of 92 cooperations within five Dutch multinationals.