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Theoretical Isolation in Contract Theory: Suppressing Margins and Entrepreneurship

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Author Info
Kirsten Foss
Nicolai Foss

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Abstract

We 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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Paper 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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Handle: RePEc:ivs:iivswp:00-4

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Related research
Keywords: Contract theory; new institutional economics; Austrian economics; entrepreneurship;

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Find related papers by JEL classification:
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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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.:
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  4. Hermalin, Benjamin E & Katz, Michael L, 1993. "Judicial Modification of Contracts between Sophisticated Parties: A More Complete View of Incomplete Contracts and Their Breach," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 230-55, October.
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    Other versions:
  6. Georg Nöldeke & Klaus M. Schmidt, 1992. "Option Contracts and Renegotiation - A Solution to the Hold-Up Problem," Discussion Paper Serie A 417, University of Bonn, Germany, revised Aug 1993.
    Other versions:
  7. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
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  8. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March. [Downloadable!] (restricted)
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  10. Klaes, Matthias, 2000. "The Birth of the Concept of Transaction Costs: Issues and Controversies," Industrial and Corporate Change, Oxford University Press, vol. 9(4), pages 567-93, December.
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  12. Maskin, Eric & Tirole, Jean, 1999. "Two Remarks on the Property-Rights Literature," Review of Economic Studies, Blackwell Publishing, vol. 66(1), pages 139-49, January. [Downloadable!] (restricted)
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  14. Kreps, David M, 1996. "Markets and Hierarchies and (Mathematical) Economic Theory," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 561-95.
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  17. Maskin, Eric & Tirole, Jean, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Blackwell Publishing, vol. 66(1), pages 83-114, January. [Downloadable!] (restricted)
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  27. Peltzman, Sam, 1991. "The Handbook of Industrial Organization: Review Article," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 201-17, February. [Downloadable!] (restricted)
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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. Gérard Charreaux, 2008. "La recherche en finance d’entreprise:quel positionnement méthodologique?," Working Papers FARGO 1080501, Université de Bourgogne - Latec/Fargo (Research center in Finance,organizational ARchitecture and GOvernance). [Downloadable!]
    Other versions:
  2. Kirsten Foss & Nicolai J. Foss & Peter G. Klein, 2006. "Original and Derived Judgment An Entrepreneurial Theory of Economic Organization," DRUID Working Papers 06-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
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