Rachelle Sampson

In this paper, we examine technology alliance contracts in detail, to explore if and how formal contract terms vary with the availability of informal governance. Traditionally, formal governance has been viewed as the means to address the moral hazard problem, via explicit contractual mechanisms. Via the contract, partner obligations are explicitly specified and uncertainty is dealt with by inclusion of contingent claims. Formal contracting, however, is costly and not the only solution to the moral hazard problem inherent in alliances. Informal governance, or discipline mechanisms outside the contract itself, can encourage cooperative behavior between partners. More specifically, repeated interactions can, through implicit mechanisms, serve to mitigate moral hazard. We use a case study approach to explore the contract mechanisms that reveal a possible interaction between formal and informal governance. By examining the actual contracts, we can see first hand the variety of processes that contracting parties have invented and whether these processes are complementary or substitutable for one another. While we conjecture here as to the source of discovered contract variation, this exploration is intended primarily to facilitate later empirical analyses to test whether contract regularities are consistent with theoretical predictions.