The Inherent Failures of Long-Term Contracts — and How to Fix Them

Oliver Hart, Nobel-winning Harvard economist, and Kate Vitasek,
faculty at the University of Tennessee, argue that many business
contracts are imperfect, no matter how bulletproof you try to make
them. Especially in complicated relationships such as outsourcing,
one side ends up feeling like they're getting a bad deal, and it
can spiral into a tit for tat battle. Hart and Vitasek argue that
companies should instead adopt so-called relational contracts.
Their research shows that creating a general playbook built around
principles like fairness and reciprocity offers greater benefits to
both businesses. Hart and Vitasek, with the Swedish attorney David
Frydlinger, cowrote the HBR article "A New Approach to Contracts."