Relational Contracting in Developed Economies: Lessons From Slot Exchanges in the US Airline Industry

Abstract

This paper highlights the widespread use of relational contracting in developed economies. While the number of empirical studies on relational practices in developing countries is increasing rapidly, evidence from industries and countries characterised by strong institutions is lagging behind due to data constraints. We argue that technological progress and strong institutions do not diminish the use of relational contracting, and use the US airline industry as a case in point. In particular, we discuss a number of factors (including transaction complexity, existence of collaborative relationships and data availability) that make this industry an ideal setting to study relational contracting in a developed economy. Moreover, we argue that other industries in developed countries share the properties of the US airline industry and, hence, can be used as a basis to investigate relational contracting in future work.