Design of contracts between knowledge-intensive service firms in comparative property right settings

Abstract

Purpose

This article aims to explore how knowledge-intensive service firms design inter-firm contracts to govern the exchange of highly intangible and inseparable knowledge under varying degrees of property right protection.

Design/methodology/approach

This research uses a multiple case study of management consulting firms domiciled in Serbia and Albania.

Findings

Firms domiciled in relatively weak property right settings prefer more informal contracts, whereas those in settings of superior property right protection favour greater formality as a means of encouraging the creation and sharing of knowledge, whilst concurrently mitigating the threat of opportunism.

Research limitations/implications

This article contributes new knowledge with regard to the design of inter-firm contracts to govern the sharing of highly intangible and inseparable knowledge. In terms of theory, it employs a transaction cost economics approach in which inter-firm contracts are decomposed into five requisite provisions, which are then related to the degree of formality.

Practical implications

Knowledge-intensive service firm managers should assess the degree of property right protection when considering the degree of formality of inter-firm contracts.

Originality/value

The study constitutes the first attempt to empirically examine how knowledge-intensive service firms craft contracts in different property right settings. With the burgeoning number of cross-border collaborative partnerships between such firms, it offers important insights into the choice of governance mechanism in different property right protection settings.

Citation

Rosenbaum, S. (2013), "Design of contracts between knowledge-intensive service firms in comparative property right settings", Journal of Services Marketing, Vol. 27 No. 5, pp. 416-428. https://doi.org/10.1108/JSM-01-2012-0001