A Real Options Approach to Contractual Agreements and Value Flexibility
Abstract
Contracts are usually analyzed in the light of the reduction of transaction costs that they may ensure. But this disregards the advantages of strategic flexibility in business relations. In this paper we consider a model of provider-client relation and see how flexibility in the contract (seen as a combination of a put and a call option) ensures a higher payoff to the involved parties.
Full Text: PDF DOI: 10.15640/smq.v2n3-4a5
Abstract
Contracts are usually analyzed in the light of the reduction of transaction costs that they may ensure. But this disregards the advantages of strategic flexibility in business relations. In this paper we consider a model of provider-client relation and see how flexibility in the contract (seen as a combination of a put and a call option) ensures a higher payoff to the involved parties.
Full Text: PDF DOI: 10.15640/smq.v2n3-4a5
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