Although disputes are frequent in interorganizational relationships, they are more or less difficult to resolve. Contractual mechanisms of dispute resolution designed ex ante have important implications for the way in which disputes are resolved. Drawing on transaction cost economics logic together with the legal literature, we examine the antecedents of complex dispute resolution provisions in contracts. We argue that the use of complex dispute resolution provisions in inter-organizational relationships is driven by the expectation of the partner’s unwillingness to cooperate in resolving disputes ex post. In particular, we suggest that the transaction-specific investments devoted by different parties will influence the design of dispute resolution provisions, contingent on each party’s expectation of future interactions. As parties commit different types of investments in the relationship, they are likely to value partnership continuity differently and, in turn, influence the design of complex dispute resolution provisions. The results from a study of disclosed documents and contracts on 137 franchise systems in the U.S. largely support our arguments.
Academy of Management Best Paper Proceedings, Academy of Management.