Scaffolding: Using Formal Contracts to Build Informal Relations in Support of Innovation

Abstract

In a study that follows in Macaulay’s (1963) footsteps, we asked businesses what role formal contract law plays in managing their external relationships. We heard similar answers to the ones Macaulay obtained fifty years ago from companies who described important but non-innovation-oriented external relationships. But we also uncovered an important phenomenon: companies that described innovationoriented external relationships reported making extensive use of formal contracts to plan and manage these relationships. They do not, however, generate these formal contracts in order to secure the benefits of a credible threat of formal contract enforcement; instead, like Macaulay’s original respondents, they largely relied on relational tools