We study how economic problems that arise between suppliers and buyers affect the types of contracts
they write. We analyse 185 contracts signed between a buyer and 89 suppliers to test how expectations
about agency, hold‐up, and contractibility problems shape contract design. We find that contract clauses that address agency problems through monitoring, incentives or collateral are more likely if a supplier’s products are more important to the buyer. We then show that both the buyer and the suppliers seek for more contractual protection if their hold‐up concerns are larger. We find that provisions that rely on verifiability (e.g., incentive provisions) are more likely if the products underlying a contract are more contractible. Over time, contracts signed with the same supplier become stricter, which is driven by an increased number of monitoring provisions. Finally, we show that monitoring and incentive provisions are complements, addressing different aspects of agency problems. Our data allows us to address concerns about the endogeneity of product characteristics, and we are able to study how contract design and product pricing are related. (Coauthor Rajkamal Iyer, MIT Sloan School of Management).