Contractual Adaptation and the Evolutionary Perspective of Contracting Strategy
Abstract: We introduce the theoretical framework of evolutionary advantage through the lens of contracting strategy. It differs from static competitive advantage in that the evidence of evolutionary advantage transpires over time when the economic context has evolved. Using game theory, we examine across a mutually exclusive yet collectively exhaustive spectrum of economic contexts how firm and environmental 1 characteristics entail different contracting strategies and, more important, different levels of performance. Our analyses lead to a theoretical framework that implies (a) Firms with evolutionary advantage can use simpler, less costly contracting alternatives in more diverse economic contexts. (b) Firms with evolutionary advantage can organize transactions more efficiently when forced into more complex contracting alternatives. (c) Firms with evolutionary advantage can deliver high levels of performance across diverse contexts, while firms without it perform just as well when the context is predictable but fails when it turns unpredictable. (d) Evolutionary advantage explains heterogeneity in performance of a single firm over time, when the economic context evolves, and among multiple firms, when the context is unpredictable. This paper establishes the mediating role between resources / dynamic capabilities and firm performance and addresses three perceived weaknesses in the extant literature of resource- and dynamic capability-based views.