In a Tabular Form Differentiate Between Long Term Contract and Short Term Contract

In a Tabular Form Differentiate Between Long Term Contract and Short Term Contract

S/NO	LONG TERM CONTRACT	SHORT TERM CONTRACT
	A long-term contract is an agreement when an agency and a client have some serious projects to work on.	A short-term contract is one where the parties agree in advance that they will not be bound by considerations of fairness or good faith if they negotiate a future contract.
	A long-term contract allows you to provide your client with more direction and figure out a long-term plan to make sure the project is sustainable.	A shorter contract adds pressure as a client will want to see results immediately, and it may be difficult for them to see the bigger picture.
	The supplier benefits from a long-term contract because he saves informational rents	the supply chain profit increases under short-term contracts, because the renegotiation at the beginning of the second period allows the elimination of the inefficiency generated under the classical menu of contracts
	The buyer’s informational rents reduces under long-term contracting	The buyer’s informational rents increase under short-term contracting
	Payoff difference is substantial in the short-term contract but marginal under the long-term contract.	Payoff difference is marginal under the long-term contract.
	Long term contract is built around long term goals with large budget and time scale	Built around short terms goals that are limited by budget and timescale.
	Short-term contract typically describes a term of 1-2 years, sometimes up to 5 years.	A long-term contract can be 10, 20, or 50 years and above.
	A long-term contract that mandates trade in both periods is disadvantageous since renegotiation is required if there are no gains from trade in the second period.	A short-term contract is disadvantageous since a new contract must be negotiated if gains from trade exist in the second period.

References

Masten, Scott E. 2009. “Long-Term Contracts and Short-Term Commitment: Price Determination for Heterogeneous Freight Transactions.” American Law and Economics Review 11(1):79-111.

In a Tabular Form Differentiate Between Long Term Contract and Short Term Contract

Segal, Ilya. 1999. “Complexity and Renegotiation: A Foundation for Incomplete Contracts.” Review of Economic Studies 66:57-82.

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