Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/327114 
Year of Publication: 
2025
Series/Report no.: 
ZEW Discussion Papers No. 25-046
Publisher: 
ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung, Mannheim
Abstract: 
Many business relationships begin with informal interactions and later transition to formal contracts. Using a repeated-games model with a finite horizon, we show that this hybrid-contracting approach can both prolong cooperation (intensive margin) and enable it across a broader range of settings (extensive margin). We model the contract as a "smooth-landing contract" that limits actions only near the end of the relationship. We show that this flexible design supports early cooperation and outperforms rigid contracts. Our findings are robust to changes in contracting costs and timing, with optimal contract length balancing profitability and implementability.
Subjects: 
cooperation
hybrid contracting
relational contracts
repeated games
strategic alliances
JEL: 
C73
D86
K12
L14
Document Type: 
Working Paper

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