Theoretical Isolation in Contract Theory: Suppressing Margins and Entrepreneurship
AbstractWe discuss contract theory from a combined Austrian/new institutional view. In the latter view, the world is seen as shot through with ignorance and transaction costs, but, as a tendency, entrepreneurial activity responds to the problems caused by these. All modeling must critically reflect this. This ontological commitment is contrasted to various isolations characteristic of contract theory, specifically the modeling strategy of introducing often ad hoc and unexplained constraints that suppress margins and possibilities of entrepreneurial actions that would be open to real-world decision-makers. We illustrate this by means of, for example, the treatment of asymmetric information under complete contracting and the notion of control rights under incomplete contracting.
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Bibliographic InfoPaper provided by Department of Industrial Economics and Strategy, Copenhagen Business School in its series IVS/CBS Working Papers with number 00-4.
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Web page: http://www.cbs.dk/forskning_viden/fakulteter_institutter_centre/institutter/oekonomi/ivs/
Contract theory; new institutional economics; Austrian economics; entrepreneurship;
Other versions of this item:
- Kirsten Foss & Nicolai Foss, 2001. "Theoretical isolation in contract theory: suppressing margins and entrepreneurship," Journal of Economic Methodology, Taylor and Francis Journals, vol. 7(3), pages 313-339.
- B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
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