Iva Bozovic

Bio: Iva Bozovic is an academic researcher from University of Southern California. The author has contributed to research in topics: Corruption & Order (business). The author has an hindex of 2, co-authored 4 publications receiving 58 citations.

Scaffolding: Using Formal Contracts to Build Informal Relations in Support of Innovation

Abstract: In a study that follows in Macaulay's (1963) footsteps, we asked businesses what role formal contract law plays in managing their external relationships. We heard similar answers to the ones Macaulay obtained fifty years ago from smaller companies that described important but non-innovation-oriented external relationships. But we also uncovered an important phenomenon: companies, large and small, that described innovation-oriented external relationships reported making extensive use of formal contracts to plan and manage these relationships. They do not, however, generate these formal contracts in order to secure the benefits of a credible threat of formal contract enforcement. Instead, like Macaulay's original respondents, they largely relied on relational tools such as termination and reputation to induce compliance. In this paper we first present examples of this phenomenon from our interview respondents, and then consider how conventional models of relational contracting can be enriched to take account of a very different role for formal contracting, independent of formal enforcement. In particular, we propose that formal contracting -- meaning the use of formal documents together with the services of an institution of formal contract reasoning -- serves to coordinate beliefs about what constitutes a breach of a highly ambiguous set of obligations. This coordination supports implementation of strategies that induce compliance -- despite the presence of substantial ambiguity ex ante at the time of contracting--with what is fundamentally still a relational contract.

Scaffolding: Using Formal Contracts to Build Informal Relations in Support of Innovation

Abstract: In a study that follows in Macaulay’s (1963) footsteps, we asked businesses what role formal contract law plays in managing their external relationships. We heard similar answers to the ones Macaulay obtained fifty years ago from companies who described important but non-innovation-oriented external relationships. But we also uncovered an important phenomenon: companies that described innovationoriented external relationships reported making extensive use of formal contracts to plan and manage these relationships. They do not, however, generate these formal contracts in order to secure the benefits of a credible threat of formal contract enforcement; instead, like Macaulay’s original respondents, they largely relied on relational tools

Using Reflection to Activate Data Literacy: Teaching Data Literacy in Undergraduate International Relations Courses

Abstract: We evaluated the impact of experiential assignments using data on improving students’ abilities to avoid common misconceptions of data using a specific assessment tool we created. We randomly assigned students into pre- and some post- experiential data assignment test groups to gauge the impact of the different assignments on assisting students to overcome common data literacy problems. In each project, students were required to find and use data in their research to support their arguments on an assigned topic. In one project, students also reflected on the data used by both sides of an argument in the assigned topic. We found that the reflection requirement had a statistically significant effect on engaging students’ critical thinking skills for avoiding common misinterpretations of data. We believe that this finding demonstrates the large impact of reflection in building and engaging critical thinking skills necessary for data literacy in the modern age.

What Is Law? A Coordination Model of the Characteristics of Legal Order

Abstract: Legal philosophers have long debated the question, what is law? But few in social science have attempted to explain the phenomenon of legal order. In this article, we build a rational choice model of legal order in an environment that relies exclusively on decentralized enforcement, such as we find in human societies prior to the emergence of the nation state and in many modern settings. We demonstrate that we can support an equilibrium in which wrongful behavior is effectively deterred by exclusively decentralized enforcement, specifically collective punishment. Equilibrium is achieved by an institution that supplies a common logic for classifying behavior as wrongful or not. We argue that several features ordinarily associated with legal order—such as generality, impersonality, open process, and stability—can be explained by the incentive and coordination problems facing collective punishment.

Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts

Abstract: The master agreements that nominally govern the transactions between mid-western Original Equipment Manufacturers and their suppliers are not, for the most part, designed to create legal obligations. Rather, they create a space in which private order can flourish, much like the role played by firm boundaries in the Coase-Williamson theory of the firm. This Article explores how sophisticated transactors in this market have combined governance techniques associated with arm’s-length contracting, intrafirm hierarchy, and trust-based relational contracting to create relationships that are long-term, highly cooperative, and characterized by significant relationship-specific investment. It suggests that these transactors have been able to accomplish these outcomes with only minimal reliance on the legal system, in large part because they operate in a market of highly interconnected firms — a network that itself functions as a contract governance mechanism. It then explores the implications of these contract structures and the availability of network governance for firms’ make-or-buy decisions and the likelihood of innovation.

Trust, transaction costs and contractual incompleteness in franchising

Abstract: The aim of this study is to address empirically the degree of contractual completeness in franchising by combining transaction cost and relational governance perspectives. First, the ratio of specific and residual decision rights is developed as a measure of contractual completeness. Second, we extend the transaction cost perspective of contractual completeness in franchising by arguing that the franchisor’s and franchisees’ investments have a negative effect on contractual completeness under bilateral dependence and a positive effect under unilateral dependence. Third, we complement the transaction cost perspective by developing new hypotheses regarding the impact of general and knowledge-based trust on contractual completeness. General trust of the franchisor reduces the franchisor’s perception of relational risk and hence the necessity to control the network relationship by more complete contract planning, and knowledge-based trust increases information sharing between the partners and hence the knowledge base for specifying more detailed contracts. The data from the German franchise sector provide some support of the hypotheses.

Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts

Abstract: The master agreements that nominally govern the transactions between mid-western OEMs and their suppliers are not, for themost part, designed to create legal obligations Rather, like the roleplayedbyfirmboundaries in theCoase-Williamson theory of thefirm, they create a space in which private order can flourish This article explores how sophisticated transactors in this market have combined governance techniques associated with arm’s-length contracting, intra-firm hierarchy, and trust-based relational contracting to create relationships that are long-term, highly cooperative, and characterized by significant relationship-specific investment It suggests that these transactors have been able to accomplish these outcomes with only minimal reliance on the legal system, in large part because they operate in a market of highly interconnected firms—a network that itself functions as a contract governance mechanism It then explores the * Wilson-Dickenson Professor of Law, and Aaron Director Research Scholar, The University of Chicago and International Research Fellow, Said School of Business, Center for Corporate Reputation, University of Oxford, 1111 E 60th Street, Chicago, IL 60637, E-mail: lbernste@uchicagoedu I would like to thank Douglas Baird, Oren Bar-Gill, Lucian Bebchuk, Brad Bernthal, Michal Barzuza, Patrick Barry, Edward Bernstein, Naomi Bernstein, Brian Bix, Philip Braun, Ron Burt, Avinash Dixit, Shai Dothan, Robin Effron, Daniel Elfenbein, Richard Epstein, Wendy Epstein, David Finkelstein, Roger Ford, Clay Gillette, Vic Goldberg, Adi Grinapell, Philip Hamburger, Oliver Hart, Avery Katz, Stella Katz, Louis Kaplow, Dan Kelly, Dan Klerman, Leandra Lederman, Adi Leibovitch, Jim Lindgren, Stewart Macaulay, Bentley MacLeod, Dotan Oliar, Omer Peled, Brad Peterson, Ariel Porat, Mark Ramseyer, Eric Rasmusen, Alan Schwartz, Bob Scott, Hanock Spitzer, Rafe Stolzenberg, Steve Tadelis, Hagay Volvovsky, Bill Whitford, Audrey Yang, Chris Yenkey, Robert Zafft, Eyal Zamir, David Zarfes, and participants at the Private Orderings Conference at the University of Oxford (2014), the Tel Aviv University Law and Economics Workshop, the Columbia Contracts Workshop, the Harvard Law and Economics Workshop, the Stanford Law and Economics Workshop, The Yale Private Law Meeting (2015), the American Law and Economics Association Annual Meeting (2015), the ISNIE Meetings (2015), The Boulder Flatirons Conference, The University of Colorado Workshop, The Kidwell Memorial Lecture at the University of Wisconsin-Madison and the University of Chicago Faculty Workshop for helpful comments and conversations Special thanks are due to Josh Whitford who shared his interview data and insights as well as to Stella Katz, who introduced me to the world of procurement, and to Aviva Corre, William Schwesig, Weijia Rao, Connie Fleischer, Gilad Yaniv, Courtney Flowers, Kayla Gamin, and Margaret Schilt for their extraordinary research efforts The Coase-Sandor Institute at the University of Chicago Law School provided funding for this work The Author 2016 Published by Oxford University Press on behalf of The John M Olin Center for Law, Economics and Business at Harvard Law School This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommonsorg/licenses/by-nc/40/), which permits non-commercial reuse, distribution, and reproduction in any medium, provided the original work is properly cited For commercial re-use, please contact journalspermissions@oupcom doi:101093/jla/law001 at Srials D eartm nt on N ovem er 1, 2016 http://jlardjournalsorg/ D ow nladed from implications of these contract structures and the availability of network governance for firms’ make-or-buy decisions and the likelihood of innovation

The role of relationship scope in sustaining relational contracts in interfirm networks

Abstract: Research summary A key strategic decision for many firms is the scope of their relationships with partners. Existing theories of relationship scope are limited in that they disregard the facts that: (a) most firms transact within networks of multiple partners, and (b) these partnerships often involve two‐sided moral hazard. We develop a theory of partnership scope in interfirm networks that addresses these deficiencies. We show how, by broadening the scope of business it conducts with its partners, a firm can reduce externalities between them, and thereby sustain self‐enforcing exchange relationships (“relational contracts”) in which both parties cooperate with each other repeatedly and maximize the value created. We discuss numerous settings in which our model applies, including franchising, supply chains, and platform‐based ecosystems. Managerial summary A key strategic decision for many firms is the number of transactions or activities they conduct with a given supplier, business customer, or company that sells complementary products or services. We offer a theory to explain why firms often prefer relationships with broader scope. Whereas other theories are based on the ability to leverage partner knowledge or cheaper supervision, our theory is based on the concept of a “relational contract”, in which a firm and its partner cooperate with each other repeatedly according to an informal agreement between them. We show that under relational contracting, broader scope relationships encourage better mutual cooperation than narrow scope relationships, thereby maximizing the value created by them. We discuss how our model applies to franchising, supply chains, and platform‐based ecosystems.