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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. Oliver Hart & Bengt Holmstrom, 1986. "The Theory of Contracts," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 418, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers, UCLA Department of Economics 10A, UCLA Department of Economics.
  3. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Dow, Gregory K., 1987. "The function of authority in transaction cost economics," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 8(1), pages 13-38, March.
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  8. Loasby, Brian J., 1998. "The organisation of capabilities," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 35(2), pages 139-160, April.
  9. Radner, Roy, 1996. "Bounded Rationality, Indeterminacy, and the Theory of the Firm," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(438), pages 1360-73, September.
  10. Paul Milgrom & John Roberts, 1988. "Economic Theories of the Firm: Past, Present, and Future," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 21(3), pages 444-58, August.
  11. Richard N. Langlois & Nicolai J. Foss, 1996. "Capabilities and Governance the Rebirth of Production in the Theory of Economic Organization," Working papers, University of Connecticut, Department of Economics 1996-02, University of Connecticut, Department of Economics.
  12. 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, University of Chicago Press, vol. 21(2), pages 297-326, October.
  13. Kreps, David M, 1996. "Markets and Hierarchies and (Mathematical) Economic Theory," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 561-95.
  14. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 972-91, September.
  15. Moore, John, 1992. "The firm as a collection of assets," European Economic Review, Elsevier, Elsevier, vol. 36(2-3), pages 493-507, April.
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  17. Brian J. Loasby, 1994. "Organisational Capabilities And Interfirm Relations," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 45(3), pages 248-265, October.
  18. Brian J Loasby, 1994. "Understanding Markets," Working Papers Series, University of Stirling, Division of Economics 94/4, University of Stirling, Division of Economics.
  19. Nicolai J. Foss, 1996. "Firms, Incomplete Contracts and Organizational Learning," DRUID Working Papers, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies 96-2, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  20. Foss, Nicolai J, 1997. "On the Rationales of Corporate Headquarters," Industrial and Corporate Change, Oxford University Press, vol. 6(2), pages 313-38, March.
  21. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, Econometric Society, vol. 67(4), pages 741-782, July.
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Citations

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Cited by:
  1. Arshad Ali Javed & Patrick T.I. Lam & Albert P.C. Chan, 2014. "Change negotiation in public-private partnership projects through output specifications: an experimental approach based on game theory," Construction Management and Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 32(4), pages 323-348, April.
  2. Dieter Ernst, 1999. "Responses to the Crisis Constraints to a Rapid Trade Adjustment in East Asia�s Electronics Industry," DRUID Working Papers, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies 99-2, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  3. Jukka Kaisla, 1998. "The Market Process and the Emergence of the Firm Some Indications of Entrepreneurship Under Genuine uncertainty," DRUID Working Papers, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies 98-17, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  4. Bengt-Åke Lundvall & Frank Skov Kristensen, 1997. "Organisational Change, Innovation and Human Resource Development as a Response to Increased Competition," DRUID Working Papers, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies 97-16, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  5. Kirsten Foss & Nicolai J. Foss, 1999. "Organizing Economic Experiments The Role of Firms," DRUID Working Papers, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies 99-5, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  6. 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, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies 98-18, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.

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