Bart Vanneste is an Assistant Professor (Lecturer) in the Department of Management Science and Innovation (MS&I). Before joining UCL, he was a faculty member at INSEAD. Read more.
Bart‘s research interests include M&A, alliances, trust, contracts, and corporate strategy.
A common premise in prior research is that trust increases over time in relationships. Through a meta-analysis of 39 studies, we find that the bivariate correlation between trust and relationship duration (1) is on average positive and small, and (2) varies significantly across studies indicating the presence of unobserved moderators. We therefore build a theoretical framework to specify four different mechanisms—initial bias correction, change in relationship value, identification, and trust-based selection—that may affect the development of trust. We then argue that the relative strength of these mechanisms should influence whether trust increases, remains constant, or decreases over time.
Two types of contractual solutions have been proposed for resolving incentive conflicts in vertical relationships: formal and relational (i.e., enforceable or not by third parties). Much is known about the optimal structure of formal contracts, but relatively little is known about the structure of relational contracts. We study a core feature of the latter: the conditions leading to continuation of the relationship, whose prospect gives relational contracts their force. We build a formal model of a vertical relationship between two parties that endogenizes the choice of the minimum performance necessary for continuation as a function of the values of contractibles, noncontractibles, and outside options. The model highlights a basic trade-off between providing strong incentives for the present (incentive effect) and safeguarding relationships for the future (termination effect). The stable relationships that follow from a more forgiving contract are more important under certain conditions (when a lot of value is jointly created by exchange partners, i.e., high contractible value, high noncontractible value, or unattractive outside options); however, strong incentives from a less forgiving contract are more important under other conditions (when a formal contract is insufficient and a relational contract is most important, i.e., high noncontractible relative to contractible value). We discuss implications for the choice of governance of interorganizational relationships.
Organizations interacting repeatedly on similar transactions may learn from prior experiences, allowing contracts to be specified in greater detail. In this study, we analyze the conditions under which this learning effect is most likely to manifest itself. We do this by focusing on different parts of a contract as well as differences across transacting parties. Using a survey of information technology procurement contracts from 788 Dutch small- and medium-sized enterprises, we show that the learning effect is stronger for technical than for legal detail in contracts and is stronger for firms with information technology expertise than for firms without such expertise.
Using a simple but general formalization, we state the conditions under which one might expect a negative or positive relationship between preexisting trust and governance complexity, and whether crowding out or complementarity arguments are necessary for such outcomes. Our analysis provides a platform for simple but rigorous analysis of other possible relationships between trust and governance and also suggests that the debate about the relationship between governance and trust could be fruitfully redirected through greater attention to the analytical structure of the arguments.