long-term contracts theory

Long-term contracts theory explores agreements between parties that extend over several years, such as employment or supply contracts. These contracts help stabilize relationships by providing predictability and security for both sides. They can reduce costs associated with renegotiating terms frequently and foster trust, as each party is committed for the duration. However, they can also lead to rigidity, making it hard to adapt to changing market conditions. Overall, this theory highlights the balance between the benefits of stability and the need for flexibility in ongoing relationships.