Private Ordering, Social Capital, and Netowrk Governance
Abstract: Abstract The master agreements that nominally govern the transactions between Mid-Western Original Equipment Manufacturers and their suppliers are not, for the most part, designed to create legal obligations. Rather they play a role in these transactions that is akin to the role played by firm boundaries in the Coase Williamson theory of the firm--they create a space that is largely free of legal governance in which private order can flourish. This Article explores the ways that contract provisions, contract administration mechanisms, and other formal structures created by these firms interact with forces created by repeat dealing as well as relational social capital and the positions of buyers and suppliers in the network of relevant firms (structural social capital) to support the creation and maintenance of long-term cooperative contractual relationships. It then considers the implications of its findings for the make-versus-buy decision.
