Faculty Publications

Title

Uncertainty, opportunism, and governance: The effects of volatility and ambiguity on formal and relational contracting

Document Type

Article

Journal/Book/Conference Title

Academy of Management Journal

Volume

49

Issue

5

First Page

1058

Last Page

1077

Abstract

Comparing the effectiveness of contractual and relational governance in constraining opportunism under conditions of volatility and ambiguity, we hypothesize that relational contracts will be robust to volatility but not to ambiguity, whereas formal contracts will be robust to ambiguity but not to volatility. Data from 125 interorganizational relationships involving R&D for new-product development support these hypotheses. Our findings suggest that formal and relational contracts each have advantages and disadvantages in specific situations and are not simply substitutes. Our results challenge the view that relational contracts are resistant to opportunism. A revised comparative governance schema is theorized for future research. © Academy of Management Journal.

Original Publication Date

1-1-2006

DOI of published version

10.5465/AMJ.2006.22798187

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