The Economics of Adaptation and Long-term Relationships
Show Less

The Economics of Adaptation and Long-term Relationships

Dean V. Williamson

Do institutions matter in economic theory? Or is the economic analysis of institutions a distraction from the most important action? Indeed, does Vernon Smith’s notion of the “institution-free core” of formal economic theory encompass that most important action? To explore this question, this book opens with an informal tour of the economics of system design out of which an economics of adaptation ultimately emerged. The book then offers explorations, via the application of the economics of adaptation in both law and economics relating to how parties manage relationships within the firm, within the context of long-term contracts, and, most vividly, within the context of antitrust conspiracy.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 4: Adaptation in long-term exchange relations: evidence of the complementarity and ancillarity of dimensions of electricity marketing contracts

Dean V. Williamson

Abstract

The research illuminates the role of financial structure (debt or equity financing) and contract renegotiation in enabling efficient adaptation over the course of long-term exchange.I provide evidence from a dataset of electricity marketing contracts about how electricity generators and electricity marketers use four instruments – contract duration, risk-sharing schemes, financial structure, and veto provisions – to channel investment incentives and to address both programmable and unprogrammable demands for contract adjustments.The empirical results demonstrate that veto provisions support long-term contracts by investing the governance of long-term relationships with flexibility in the ancillarity of other instruments that are consistent with efficient adaptation being an important economic problem.

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.


Further information

or login to access all content.