In this article, we review the emerging economic literature on formal and informal contracting. Two patterns emerge from this literature. First, the use of informal contracts to complement formal ones is widespread, both within and between firms. Second, informal contracts are limited by the expectation of future collaborations between the parties. Our review suggests that there are significant opportunities for further integrated research in economics, law, and social sciences to enhance our understanding of the interaction between formal and informal contracting within firms, as well as in nonfirm organizations.

Research summary:A key strategic decision for many firms is the scope of their relationships with partners. Existing theories of relationship scope are limited in that they disregard the facts that: (a) most firms transact within networks of multiple partners, and (b) these partnerships often involve two-sided moral hazard. We develop a theory of partnership scope in interfirm networks that addresses these deficiencies. We show how, by broadening the scope of business it conducts with its partners, a firm can reduce externalities between them, and thereby sustain selfenforcing exchange relationships ("relational contracts") in /journal/smj them. We discuss how our model applies to franchising, supply chains, and platform-based ecosystems. K E Y W O R D Sinterfirm cooperation, interfirm networks, interorganizational relationships, relational contracts, relationship scope

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Research summary: Acquiring knowledge on a partner's pre-existing resources plays an important yet ambiguous role in collaborative relationships. We formally model how contracts trade off productive and destructive uses of knowledge in a buyer-supplier relationship. We show that, when the buyer's pre-existing resources are vulnerable to the revelation of sensitive knowledge, the supplier overinvests in knowledge acquisition as it expects to use the knowledge as a threat in price negotiations. A non-renegotiable closed-price contract prevents such overinvestment and reduces the supplier's ability to expropriate the buyer ex post. Our results extend to the cases of renegotiable closed-price contracts, repeated interactions between a buyer and a supplier, and the use of nondisclosure policies. We draw theoretical, empirical, and managerial implications from our model. Managerial summary:This study yields new insights regarding the use of contract design in protecting pre-existing, nonrelationship specific assets in buyer-supplier arrangements. Anecdotal examples illustrate the "dark side" of these arrangements where opportunistic suppliers exploit knowledge of buyers' pre-existing resources to seek rent and appropriate value. When a supplier is likely to act harmfully, a closed-price contract that specifies the price of the supplier's component upfront may reduce the supplier's incentives to overinvest in acquiring and exploiting knowledge of the buyer's pre-existing resources. As such, when a buyer's pre-existing resources are highly valuable, and thus more vulnerable to use by the supplier outside of the arrangement, a non-renegotiable closed-price contract is more efficient. Additionally, limited disclosure policies and informal agreements based on repeated interactions complement indirect governance via price contracts.

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