A Comparison of Transactional and Relational Contract Models

Abstract

In this chapter, A Comparison of Transactional and Relational Contract Models, the focus shifts to one’s decision whether to pursue a relational or transactional model. This chapter addresses the main differences between the two ends of the spectrum—transactional versus relational contracts—with an emphasis on five dimensions: focus, relationship, social norms, risk mitigation, and planning. Also, a discussion is given to an additional key differentiator: transactional contracts view the parties as economic forces, while relational contracts view the parties as human beings. Emphasis is made that the models are not binary, the picture and decision are not black or white. Each dimension exists across a continuum. For example, the extent of focusing on the relationship or the deal can vary. In some contracts, an equal focus may be on both. The degree of embeddedness in social norms may vary. A transactional contract may be rigid but still very fair.