Template-Type: ReDIF-Paper 1.0
Title: Hybrid Contracting in Repeated Interactions
Author-Name: Bernhard Ganglmair
Author-Email: b.ganglmair@gmail.com
Author-Name: Julian Klix
Author-Email: julian.j.klix@gmail.com
Author-Name: Dongsoo Shin
Author-Email:  dshin@scu.edu
Classification-JEL: C73, D86, L14
Keywords: contracts, hybrid contracting, incomplete contracts, relational contracts, repeated games, R&D, strategic alliances


Abstract: Many business relationships rely on loose arrangements and relational dynamics
in early interactions, only to solidify their alliances through contractual committments later. Using a repeated-games framework with a finite horizon, we show
how such a hybrid-contracting strategy can both extend the duration of a cooperative business relationship (intensive margin) and expand the set of environments in
which cooperation can be achieved (extensive margin). We model the contractual commitment part of hybrid contracting as a smooth-landing contract that restricts
the action space only in the backend of the relationship. Such a flexible contract
outperforms more rigid contractual arrangements because it does not crowd out
early-stage cooperation, thereby complementing relational dynamics. Our results
are robust to extensions that account for variations in contract costs and timing, and
we show that optimal contract length trades off profitability with implementability.
  
Note: 
Length: 46
Creation-Date: 2025-08
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp695
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2025_695