Abstract

Economic approaches to the question of how to reduce uncertainty in economic transactions, particularly with respect to economic partners’ motives and one’s own vulnerability to opportunism, have focused on the role of governance mechanisms, such as hierarchy and contracts, as safeguards against these sources of uncertainty. In contrast, economic sociologists have argued that when economic actors have embedded, rather than arms’ length, relationships, built through a long history of exchanges and demonstrations of goodwill, the trust that is built reduces the need for such governance mechanisms. Contracts are deemed unnecessary and too rigid for uncertain environments. Moreover, contracts may undermine trust, thereby hurting the relational fabric between partners. The present research explores a third alternative, based on the practice perspective, of contracting as an ongoing practice in organizational life.

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