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Incomplete Contracts and Economic Organization Brian Loasby and the Theory of the Firm

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  • Nicolai J. Foss

Abstract

The paper begins by providing a brief overview and discussion of the modern economics of organization, concentrating in particular on the work of incomplete contract theorists. I then turn to a discussion of Loasby’s view of the firm and incomplete contracts. The point here is that while Loasby begins from the same recognition as modern incomplete theorists, that contractual incompleteness is a necessary component of a theory of the firm, the causes and consequences of contractual incompleteness are widely different. Thus, Loasby sees incompleteness as a distinct virtue because it allows for organizational learning, whereas incompleteness in the modern economics of organization is seen as a distinct problem because it opens the door to incentive conflicts. I end by speculating on how Loasby’s non-mainstream ideas on economic organization may be related to some relatively mainstream ideas about alternative gameforms and real options.

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File URL: http://www3.druid.dk/wp/19970011.pdf
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Bibliographic Info

Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 97-11.

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Date of creation: 1997
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Handle: RePEc:aal:abbswp:97-11

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Web page: http://www.druid.dk/

Related research

Keywords: Incompleteness; economic organisation incentives; Theory of the firm.;

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References

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  1. Langlois, Richard N & Foss, Nicolai J, 1999. "Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization," Kyklos, Wiley Blackwell, vol. 52(2), pages 201-18.
  2. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
  3. Moore, John, 1992. "The firm as a collection of assets," European Economic Review, Elsevier, vol. 36(2-3), pages 493-507, April.
  4. Oliver Hart & Bengt Holmstrom, 1986. "The Theory of Contracts," Working papers 418, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Mathias Dewatripont & Patrick Bolton, 2004. "The firm as a communication network," ULB Institutional Repository 2013/9599, ULB -- Universite Libre de Bruxelles.
  6. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  7. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  8. Kreps, David M, 1996. "Markets and Hierarchies and (Mathematical) Economic Theory," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 561-95.
  9. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Richard N. Langlois, 1995. "Capabilities and the Theory of the Firm," Industrial Organization 9503002, EconWPA.
  11. Radner, Roy, 1996. "Bounded Rationality, Indeterminacy, and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 106(438), pages 1360-73, September.
  12. Brian J. Loasby, 1994. "Organisational Capabilities And Interfirm Relations," Metroeconomica, Wiley Blackwell, vol. 45(3), pages 248-265, October.
  13. Richardson, G B, 1972. "The Organisation of Industry," Economic Journal, Royal Economic Society, vol. 82(327), pages 883-96, September.
  14. Dow, Gregory K., 1987. "The function of authority in transaction cost economics," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 13-38, March.
  15. Wernerfelt, Birger, 1997. "On the Nature and Scope of the Firm: An Adjustment-Cost Theory," The Journal of Business, University of Chicago Press, vol. 70(4), pages 489-514, October.
  16. Nicolai J. Foss, 1996. "Firms, Incomplete Contracts and Organizational Learning," DRUID Working Papers 96-2, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  17. Brian J. Loasby, . "The Organisation of Capabilities," Working Papers Series 96/6, University of Stirling, Division of Economics.
  18. Foss, Nicolai J, 1997. "On the Rationales of Corporate Headquarters," Industrial and Corporate Change, Oxford University Press, vol. 6(2), pages 313-38, March.
  19. Paul Milgrom & John Roberts, 1988. "Economic Theories of the Firm: Past, Present, and Future," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 444-58, August.
  20. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
  21. Brian J Loasby, 1994. "Understanding Markets," Working Papers Series 94/4, University of Stirling, Division of Economics.
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Citations

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Cited by:
  1. Keld Laursen, 1998. "Do Export and Technological Specialisation Patterns Co-evolve in Terms of Convergence or Divergence? Evidence From 19 OECD Countries, 1971-1991," DRUID Working Papers 98-18, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  2. Jukka Kaisla, 1998. "The Market Process and the Emergence of the Firm Some Indications of Entrepreneurship Under Genuine uncertainty," DRUID Working Papers 98-17, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  3. Dieter Ernst, 1999. "Responses to the Crisis Constraints to a Rapid Trade Adjustment in East Asia�s Electronics Industry," DRUID Working Papers 99-2, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  4. Kirsten Foss & Nicolai J. Foss, 1999. "Organizing Economic Experiments The Role of Firms," DRUID Working Papers 99-5, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  5. Bengt-Åke Lundvall & Frank Skov Kristensen, 1997. "Organisational Change, Innovation and Human Resource Development as a Response to Increased Competition," DRUID Working Papers 97-16, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.

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