Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets

This paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities. Data for 277 coal contracts are used to perform the analysis. The results provide strong support for the view that buyers an...

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Bibliographic Details
Published in:The American economic review 1987-03, Vol.77 (1), p.168-185
Main Author: Joskow, Paul L.
Format: Article
Language:English
Subjects:
296000 > Energy Planning & Policy-- Electric Power
Assets
CARBONACEOUS MATERIALS
COAL
Coal industry
Coal utilization
Coefficients
CONTRACT MANAGEMENT
Contract negotiations
Contract provisions
Contracts
ELECTRIC UTILITIES
ENERGY PLANNING, POLICY AND ECONOMY
ENERGY SOURCES
Estimates
FOSSIL FUELS
FUELS
Hypotheses
Industrial economics
INVESTMENT
Investments
MANAGEMENT
MARKET
Markets
MATERIALS
Maximum likelihood estimation
PROGRAM MANAGEMENT
Public utilities
PUBLIC UTILITIES 294001 > Energy Planning & Policy-- Coal
Regression analysis
Relations
RISK ASSESSMENT
SPOT MARKET
Studies
Suppliers
Supply
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Summary:This paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities. Data for 277 coal contracts are used to perform the analysis. The results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage, and rely less on repeated bargaining, when relationship-specific investments are more important.
ISSN:0002-8282
1944-7981