Why “Quiet Quitting” Is a Contract Renegotiation You Didn’t See Coming

Summary

Unhappy workers reportedly cost US firms $1.9 trillion, yet property rights theory struggles to explain it. In our study published in the Journal of Management studies, we demonstrate how fairness and reciprocity govern the interactions after the contract is signed. The sort of ex post re-negotiation that property rights theory seeks to minimize may be a permanent condition of the going concern. The “owner” who ignores fairness leaves a great deal of value on the table.

The trillion-dollar problem hiding in plain sight

A recent Bloomberg headline put the cost of unhappy American workers at $1.9 trillion. The behavior behind these costs – “quiet quitting” – puts enormous stress on the received tools of property rights theory (PRT). Quiet quitters do not break their contracts. They show up, do the minimum the agreement requires, and withhold the discretionary effort that actually drives performance. The same logic powers the old union tactic of “working to rule,” and 45 per cent of Japanese workers now admit to a version of it. None of this is a breach of the contract, but it is nevertheless costly.

This is awkward for one of the dominant economic theories of how firms organize cooperation. PRT — the framework associated with Nobel Laureate Oliver Hart, Sandy Grossman, and John Moore — explains elegantly how parties set up a cooperative venture. Because no contract can anticipate every future contingency, PRT arranges the future such that any unspecified gains, losses, or decisions about their distribution (the “residual rights”) go to whichever party makes the most important relationship-specific investment. PRT calls that party the “owner.”

The trouble starts after the contract is signed. PRT treats the aftermath — the renegotiations, the foot-dragging, the quiet retaliation — as a cost to be driven toward zero by assigning control cleanly to one party. But that aftermath never disappears. As the theory’s own architects have conceded, fully complete contracts are impossible, so there is always a live question of how people will behave in the gaps.

Filling in the gap: justice and reciprocity

Behind the “black letter” of every contract, we argue, lies a “white background” of social norms, including norms and perceptions of justice. The behavioral evidence here is overwhelming and cross-cultural. People are not purely self-interested calculators; they are boundedly self-interested. They pursue their own gain right up until they sense a gift, favor, or insult they received has broken the balance of some previous state of affairs, at which point they will spend their own resources to punish the offender or reward the generous party. These reactions are predictable. Treat people better than expected and they reciprocate positively, regardless of what your contract says. Treat them worse and they reciprocate negatively — through quiet quitting, slower payment, returns, boycotts, etc.

The more interdependence, the more fairness matters

The power of fairness isn’t constant across contexts. It scales with how interdependent the work is.

When work is modular — each party contributes a discrete piece to a central coordinator, as Foxconn assembles components for Apple — coordination is simple and reciprocity is mostly one party responding to another. Here an “owner” can, if they chose, isolate stakeholders from one another and suppress their ability to push back. Fairness still matters, but its effects are modest and closest to received PRT predictions.

When work is sequential — a supply chain where each tier hands off to the next, like Toyota’s just-in-time suppliers — reciprocity runs in a chain. A stakeholder now judges not only how the owner treats them but how others up and down the line are treated. The owner’s ability to hide bad behavior shrinks, and the value at stake rises.

When work is reciprocal — everyone’s output is everyone else’s input in real time, as in the open-source ecosystem around the Linux Foundation — coordination is highest and reciprocity becomes generalized. People contribute to the whole group without any direct quid pro quo expectations. This is the setting that is most at odds with classic PRT, because no single party can sensibly hold all the decision rights as cleanly as PRT would have it. Early property rights scholars predicted cooperation like this couldn’t work without ironclad contracts. We argue it works fine — when the owner actively cultivates fairness and reciprocity rather than trying to replace them with authority.

What this means for managers

Managers, according to PRT, are often responsible for making decisions down the line about issues that were never anticipated in contracts. Our paper points out that managers have always been responsible for more than this: they can also intentionally facilitate or constrain reciprocity that can create or destroy more value for their firm outside the contract. As the work activities they oversee become increasingly interdependent, the effects of supporting reciprocity on firm performance increase. This post draws on the authors’ study published within the Journal of Management Studies.