The Relational Costs of Complete Contracts

Abstract

Although contracts provide safeguards against risk, they can also signal low expectations for a relationship (e.g., suggesting a prenuptial agreement.) Three studies document how attempts to create more complete contracts, driven by a desire to effectively manage the potential pitfalls in a relationship, can crowd out rapport and undermine trust and cooperation. More specifically, this paper investigates the signaling effects of two aspects of contract completeness, specificity and the number of clauses in the contract. We found that complete contracts act as a signal (Study 1) and reduce relational expectations, subjective satisfaction, and trust (Study 2); they also lead to less cooperative behavior (Study 3). We discuss some of the implications of this paradox.