Lock-in, Reputation and Contractual Dynamics : the Case of Car Parking Services
Abstract: This article deals with the effects of reputation in the contracting-out of public services. Using the framework of Tirole , we consider that contractors are all the more willing to write incomplete contracts and support relational agreements than they trust their partner. In this context, we show that informal practices depend both on future transactions and past experiences. Then, reputation is built over time, which leads progressively to lower contracting costs and more contractual incompleteness. To benefit of these lower costs, parties tend to renew contracts with the same “trusted” partners that they identify through time.