Relational Incentive Contracts

This chapter reviews the literature on the theory of relational incentive contracts.  It motivates the discussion by the classic applications of relational contracts to the GM-Fisher Body relationship and the relationships between Japanese automobile manufacturers and their subcontractors.  It presents basic models with symmetric information to illustrate the fundamental issues and then goes on to consider specific investments, the role of legally enforceable contracts alongside relational contracts, private information, multiple suppliers, and issues of organization design.