Contracts and covenants: A study of cooperation in interorganizational relationships

• Main Author: Husted, Bryan William
• Format: Dissertation
• Language: English
• Published: ProQuest Dissertations & Theses 01-01-1990
• Subjects: Management; Sociology
• ISBN: 9798207716923

This study explores why economic organizations sometimes cooperate in a trusting and creative manner which advances their collective interest rather than in a narrow, self-regarding way which only promotes their individual interests. The historical distinction between the individualistic orientation of the contract and the mutual orientation of the covenant is used to capture this variation in cooperation. Economics and sociology provide different perspectives on the conditions which foster covenantal relations. Economists argue that the nature of cooperation depends on a calculation weighing the benefits of abusing trust now against the costs of such abuse: discontinued business and possible litigation in the future. Costs often depend on the nature of the transaction assets, the bargaining power of the parties, and the risk of unreciprocated cooperative action. Sociologists, on the other hand, have argued that covenantal cooperation arises either from the shared expectations of the parties or from the network of personal relations that exist in a trading context. The present study investigates the alternative views of economics and sociology regarding covenantal relationships by undertaking an in-depth, qualitative study of interorganizational relationships in a variety of contexts. It finds that the material and technical features of a transaction are not sufficient to explain the emergence of a collective orientation on the part of participants. Economic activity is embedded within a capsule of normative and social factors which affect the nature of cooperation in the relationship. The norms and social bonds which may have arisen originally in response to an economic calculus fundamentally alter the relation and the mode of cooperation. In addition, where there are effective normative and social checks against opportunism, uncertainty is low and covenantal relations flourish. Where such bonds are weak, contractual safeguards are needed to maintain the integrity of economic transactions. The theoretical and managerial implications of these insights are then discussed.