Logo Logo

Relational Adaptation under Reel Authority


We study ongoing relationships in which parties must repeatedly tailor decisions to the state of the world, but typically have different preferred decisions. Our theoretical analysis show how relational adaptation (i.e., self-enforcing agreements that facilitate efficient adaptation), combined with formal contracting, induces state-dependent decision-making that improves upon the expected payoffs under either formal contracting or relational contracting alone. Our empirical analysis focuses on formal revenue-sharing contracts between movie distributors and exhibitors that allow the exhibitor wide leeway about whether to show the movie and in what time slots. These formal contracts are often informally renegotiated after the movie has finished its run - i.e., long after any adaptation decisions have been taken by the exhibitor. Our empirical setting is attractive because we observe: (i) the formal revenue-sharing contract terms; (ii) informal renegotiation of the formal contract terms that occur after all decisions have been made; and (iii) proxies for both the state of the world (potential revenues from alternative movies competing for the same time slots) and the adaptation decisions (what movies were actually shown, and in what time slots). Our theoretical and empirical results suggest that formal contracts can be the foundation for informal relationships that achieve efficient adaptation in fluctuating environments.


Working Paper


Daniel Barron, Robert Gibbons, Kevin J. Murphy

Date Published



Barron, Daniel, Robert Gibbons, and Kevin J. Murphy. 2016. Relational Adaptation under Reel Authority.


Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more


Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.


Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more