Conceptual analysis of relational contracting theory

The colors in Figure 7 represent the groups of authors that have the most similarities in citation patterns. I offer the summaries of selected studies, grouped by bibliometric clusters, in Appendix 8. The appendix table presents the field of research, unit of analysis, methodology used, and the developed operationalization of Macneil’s contractual norms for each of the studies. The descriptive presentation of conclusions below relies on Appendix 8. Thus, the below text and Appendix 8 can best be reviewed together. Further, I will first discuss the essential properties of relational contracting based on Macneil’s original work, and then present Macneil’s ten contractual norms.

conceptual focus. For my study to rely on relational contracting as a theoretical frame of reference, it is critical to understand the ten contractual norms and their possible manifestations in various kinds of exchange relationships.

5.2.2 The ten norms of contracting

Macneil’s ten contractual norms do not explain the nature of specific exchanges, but they are the conditions that have to be in place for any exchange – whether discrete or relational – to take place. Contractual norms do not form a linear spectrum from discrete to relational, as they have been popularly perceived. It is rather the specific manifestations of norms that inform the nature of a particular instance of exchange.

Below, I present Macneil’s ten norms of contracting one by one:

1. Stakeholder’s role integrity. Any exchange – whether discrete or relational – can only efficiently take place when the parties can reasonably assume that the other will behave properly to their roles and adequately to the circumstances.

Whether the formal rules are assigned to the roles, as in discrete exchanges, or the parties act upon the implicit expectations, as in relational exchanges, contracts can only take place when and where stakeholders’ roles can be relied upon (Macneil, 1983).

2. Reciprocity. Just as with the integrity of stakeholders’ roles, any exchange presupposes that the behaviors of the parties are conditioned upon each other.

In discrete exchanges, the terms of reciprocity are more immediate than in relational ones. Relational exchanges are often open, forward contracts that presuppose one party’s right for returns and the other party’s implicit obligation to provide such returns (Blau, 1964/2017). The backbone for understanding the nature of returns is the parties’ perception of the value of the exchange object. Whereas a discrete exchange focuses on equality and adequacy of explicit returns, the value in relational exchanges is not necessarily equal (Blois and Ivens, 2007). This brings forth an important methodological consideration for studies aiming to understand the role of reciprocity in exchanges, as understanding the individual perceptions of value can best be achieved through qualitative inquiries.

3. Implementation of planning. Discrete exchanges involve straightforward planning mechanisms, as they encompass explicit commitments and terms of execution. When it comes to relational exchanges, the planning element is likely to be even more important, insofar as it serves as a mechanism of dealing with uncertainty and conflicts arising from it (Leblebici and Shalley, 1996). A

good example of handling the conflicts in relational exchanges is when the entrepreneur continues to support a suboptimal relationship with a supplier, accepting unfavorable conditions, because the economic cost of searching and negotiating with a different one is perceived as too high.

4. Effectuation of consent. Together, implementation of planning and effectuation of consent form the group of norms that Macneil labels “enhancing discreteness and presentation”. Reliance on this group is characteristic of exchanges that are more discrete. Effectuation of consent builds upon the mutual acceptance of the inevitable sacrifice – by entering into one exchange relationship, the parties abandon other alternatives, and their actions outside of a given relationship become limited. In exchanges that are more relational, the implications of such a consent cannot be fully determined in advance, but despite risks and uncertainties, the exchange is only possible when mutual implicit consent is in effect.

5. Flexibility. The norms of contractual solidarity and flexibility build a group of norms that Macneil labels “preservation of the relationship”. This group of norms is characteristic of exchanges that are more relational. Under discrete guidance of common contractual law, the parties adhere to an explicit pattern regulating the exchange, where the mechanisms for flexibility are built-in. For instance, a manufacturer purchases the material in smaller amounts, allowing for the opportunity to adjust the purchase amount up or down depending on how much of the end product they can sell at any given time of the contract being in force. This is how the purchasing contracts are made in established organizations, where resources and routines are in place. In exchanges that are more relational, flexibility, on par with implementation of planning, constitutes the individual perceptions of costs and rewards of alternatives. Blois and Ivens (2007) point out that flexibility is a long-term relational norm that should be understood beyond the validity of any formal contracts. Thus, flexibility in relational exchanges is a longitudinal construct that is important for my study, interested in outcomes of bootstrapping exchanges.

6. Contractual solidarity. The contractual solidarity norm presupposes that the parties understand and accept that society cannot function without exchanges.

Therefore, the parties implicitly consent to depend on one another within the framework of the exchange relationship. Trust is commonly seen as a lubricant of contractual solidarity between the individual and organizational stakeholders. Trust refers to the ongoing possibility of a favorable state of expectations towards others (Möllering, 2006). In this respect, trust is critically important in entrepreneurial resource acquisition and management, as it helps

to mitigate the effects of information asymmetries and liabilities of age and scale (Aldrich and Fiol, 1994). In trustful relationship, the trustor remains in a favorable state of expectations towards the trustee, although they cannot be absolutely sure of the outcomes, even if they have had negative past experiences in similar situations and despite recognizing the risks and limitations. Provided that trust exists as an ongoing state in a relationship, the parties act as if the situation they face is unproblematic (Möllering, 2006). Exchanges that take place in new firms – bootstrapping exchanges in particular – are characterized by high reliance on trust, regardless of whether or not the parties perceive the existence of trust.

7. Linking norms: restitution, reliance, and expectation interests. Together with the understanding that society cannot function without exchanges, contractual parties understand the necessity of making adjustments in response to circumstances in an uncertain future. Linking norms constitute the whole body of principles related to such adjustments. Restitution might be necessary if one party gains an unfair advantage from the exchange, reliance is needed with regard to promises made to each other, and expectation interests are conduits of execution of exchange.

8. Creation and restrain of power. Contracts not only grant power to the parties, but also restrain them, limiting the contractual parties’ possibilities of entering into other exchanges. More discrete exchanges are immediate, short-lived, and starting and ending instantaneously – for example, in case of breach of contract (Macneil, 1980). For more relational exchanges, the significance of creation and restrain of power is higher, as it can only be moderated by norms of reciprocity and effectuation of consent, and not by explicit terms of contract.

9. Propriety of means. Any exchange, regardless of its nature, is characterized by its own unique set of means that serve to achieve the goals of exchange.

Different means might be considered (in)appropriate in different industrial or cultural contexts. Within any particular exchange relationship, the parties develop a unique set of means that both sides implicitly accept.

10. Harmonization with the social matrix. Together, the norms of flexibility and harmonization with the social matrix form a group of norms that Macneil labels “harmonization of relational conflict”. In discrete and relational exchanges alike, relationships are maintained through provisions of rewards and enactment of punishments when necessary. Harmonization with the social matrix is a so-called supra-contractual norm that allows for relationships to

form and develop such provisions with a common, harmonized understanding of possible rewards and punishments (Ivens and Blois, 2004).