Reference

Marina Halac (Columbia University), “Relationship Building”, Fédération des Banques Françaises Seminar, TSE, June 21, 2010, 15:00–16:15, room MF 323.

Abstract

The question of how to develop a relationship is central to business and management. This is especially true when the environment is characterized by informational asymmetries and subjectivity, as for example in management consulting. This paper presents a model of relationship building inspired by features of the consultant-client relationship. Consistent with the evidence, it shows that consultants and clients optimally start with low-risk, low-return assignments, and move up to high-risk, high-return assignments over time as they accumulate relationship capital. The probability of breakup is decreasing over the course of the relationship, but may jump when a higher-risk assignment is adopted.