Trust and Collaboration in the Aftermath of Conflict: The Effects of Contract Structure

Abstract

Leveraging a longitudinal data set concerning 102 interfirm disputes, we evaluate the effects of contract structure on trust and on the likelihood of continued collaboration. We theoretically refine and empirically extend prior research by (1) distinguishing between the control and coordination functions of contracts, (2) separating goodwill-based and competence-based trust, and (3) evaluating the effects of contract structure on relational outcomes in the context of disputes. We find that control provisions increase competence-based trust but reduce goodwill-based trust, resulting in a net decrease in the likelihood of continued collaboration. Coordination provisions increase competence-based trust, leading to an increased likelihood of continued collaboration.