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A Signaling-Based Theory of Contractual Commitment to Relationships

Vasconcelos, Luis (2017) 'A Signaling-Based Theory of Contractual Commitment to Relationships.' European Economic Review, 93. 123 - 138. ISSN 0014-2921

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Abstract

In this paper I present signalling as an explanation for how and why parties commit to relationships when they initially contract about the terms of those relationships. Two forms of contractual commitment to a relationship are considered: a promise to trade in the future (contracted quantity); and a promise not to trade with anyone else (contracted exclusivity). A party is said to commit more to a relationship if it commits initially to trade a higher quantity and/or to a higher level of exclusivity. I characterize equilibrium contracts and therefore commitment. Both the ability to signal information through an exclusivity commitment and whether the informed party commits more to the relationship when the relationship is more likely to succeed depend on the source of the asymmetry of information.

Item Type: Article
Uncontrolled Keywords: Contractual commitment; Signalling; Informed principal
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Luis Vasconcelos
Date Deposited: 20 Feb 2017 11:17
Last Modified: 12 Feb 2019 02:00
URI: http://repository.essex.ac.uk/id/eprint/19003

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