Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316353 
Year of Publication: 
2025
Series/Report no.: 
Helsinki GSE Discussion Papers No. 36
Publisher: 
Helsinki Graduate School of Economics, Helsinki
Abstract: 
We build a simple formal model of governance. Investments and control rights over assets and labor are fully contractible, but final production decisions are ex ante uncontractible, and ex post negotiations are inefficient. If sunk costs are low, suppliers own assets and trade takes the form of competitive spot market transactions. If sunk costs are large, at most one supplier is active, and governance depends on the asset's relationship-specificity. If the specificity is low, the buyer offers a "master supply agreement" to an independent supplier. If the specificity is high, the buyer owns the asset and employs the supplier.
Subjects: 
transaction cost
property right
relationship specificity
organization
bargaining
vertical integration
governance
inefficiency
master supply agreement
managed market
JEL: 
D23
D86
L22
ISBN: 
978-952-7543-35-1
Document Type: 
Working Paper

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