Abstract
Abstract
Parties often regulate their relationships through “continuing” contracts that are not fixed term but roll over: employment is a leading example. Our premise is that parties apply fairness when they revise a continuing contract and that prior terms, together with market information, will be a reference point. A continuing contract can reduce (re)negotiation costs relative to a short-term or long-term contract. However, fair bargaining makes adjusting to outside options difficult and may cause inefficient outcomes. An implicit promise of a long-term relationship, as in employment, can improve matters. (JEL D23, D86, K12).
Funder
US National Science Foundation
National Bureau of Economic Research
Publisher
Oxford University Press (OUP)
Subject
Law,Organizational Behavior and Human Resource Management,Economics and Econometrics
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