ABSTRACT
This chapter presents the major features that differentiate between long-term and short-term contracts. It discusses the most important parameters affecting the optimal contract length. The chapter describes the major aspects on contract drafting and design. It discusses the major issues concerning contract renegotiation and breach. The Law and Economics literature has highlighted three major dimensions of long-term contracts: the existence of specific investments, the inherent incompleteness of long-term contracts and the complexities arising from breach and termination that directly affect the drafting of the long-term contract. Relationships that last a long time do not necessarily require a certain type of contract, a given contract length or even a formal contract at all and hence may be governed by a long-term contract or by successive short contracts. All contracting parties face the challenge of addressing uncertainty and aiming at drafting a complete contingent contract. In light of the commitment element inherent to long-term contracts, the need for renegotiation is reduced significantly.
