The Law and Economics of Relational Contracts, 2013

The economy is full of relational contracts, norms and codes of conduct that affect behavior of individuals within firms and business dealing between firms. Most contractual relationships are both formal and relational: The parties know that they have a legally binding (formal) contract that governs the basic parts of their exchange, but they also know that many of the expectations and promises that are made during their ongoing contractual relationship cannot be enforced by a court of law, and thus need to be based on trust. The aim of the research project “The Law and Economics of Relational Contracts” was to analyze how the interaction between formal contracts, legal institutions and relational contracts affect i) incentives within and between firms and ii) the boundaries and scope of firms. More broadly, the provision and/or effect of incentives in situations where legal institutions are imperfect and/or humans are motivated by more than money were analyzed. Theoretical models were developed and controlled laboratory experiments conducted. The project includes two subprojects: "Repeated money game" (project 1) and “The prisoners dilemma with an infinite horizon” (project 2).