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

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Nicolai J. Foss

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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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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/

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

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Find related papers by JEL classification:
B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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  1. Richardson, G B, 1972. "The Organisation of Industry," Economic Journal, Royal Economic Society, vol. 82(327), pages 883-96, September. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December. [Downloadable!] (restricted)
    Other versions:
  4. Moore, John, 1992. "The firm as a collection of assets," European Economic Review, Elsevier, vol. 36(2-3), pages 493-507, April. [Downloadable!] (restricted)
  5. Loasby, Brian J., 1998. "The organisation of capabilities," Journal of Economic Behavior & Organization, Elsevier, vol. 35(2), pages 139-160, April. [Downloadable!] (restricted)
    Other versions:
  6. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  7. Richard N. Langlois, 1995. "Capabilities and the Theory of the Firm," Industrial Organization 9503002, EconWPA. [Downloadable!]
  8. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  9. Kreps, David M, 1996. "Markets and Hierarchies and (Mathematical) Economic Theory," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 561-95.
  10. 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. [Downloadable!] (restricted)
  11. Wernerfelt, Birger, 1997. "On the Nature and Scope of the Firm: An Adjustment-Cost Theory," Journal of Business, University of Chicago Press, vol. 70(4), pages 489-514, October. [Downloadable!] (restricted)
  12. Bolton, Patrick & Dewatripont, Mathias, 1994. "The Firm as a Communication Network," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 809-39, November. [Downloadable!] (restricted)
  13. Brian J Loasby, 1994. "Understanding Markets," Working Papers Series 94/4, University of Stirling, Department of Economics.
  14. Radner, Roy, 1996. "Bounded Rationality, Indeterminacy, and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 106(438), pages 1360-73, September. [Downloadable!] (restricted)
  15. Richard N. Langlois & Nicolai J. Foss, 1997. "Capabilities and Governance the Rebirth of Production in the Theory of Economic Organization," DRUID Working Papers 97-2, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
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  16. Oliver Hart & Bengt Holmstrom, 1986. "The Theory of Contracts," Working papers 418, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September. [Downloadable!] (restricted)
  18. 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. [Downloadable!]
  19. Foss, Nicolai J, 1997. "On the Rationales of Corporate Headquarters," Industrial and Corporate Change, Oxford University Press, vol. 6(2), pages 313-38, March.
  20. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
  2. 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. [Downloadable!]
  3. 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. [Downloadable!]
  4. 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. [Downloadable!]
  5. Nicolai J. Foss, . "Edith Penrose and the Penrosians - or, why there is still so much to learn from The Theory of the Growth of the Firm," IVS/CBS Working Papers 98-1, Department of Industrial Economics and Strategy, Copenhagen Business School. [Downloadable!]
  6. 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. [Downloadable!]
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