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Opportunism, Hold-Up and the (Contractual) Theory of the Firm

  • James H. Love
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    This paper considers the role of opportunism in three contractual theories of the firm: rent-seeking theory, property rights theory, and agency theory. In each case I examine whether it is possible to have a functioning contractual theory of the firm without recourse to opportunism. Without opportunism firms may still exist as a result of issues arising from (incomplete) contracting. Far from posing a problem for the theory of the firm, questioning the role of opportunism and the ubiquity of the hold-up problem helps us understand more about the purpose and functions of contracts which go beyond mere incentive alignment.

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    Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

    Volume (Year): 166 (2010)
    Issue (Month): 3 (September)
    Pages: 479-501

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    Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201009)166:3_479:ohatct_2.0.tx_2-5
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    1. Donald G McFetridge, 1995. "Knowledge, Market Failure and the Multinational Enterprise: A Comment," Journal of International Business Studies, Palgrave Macmillan, vol. 26(2), pages 409-415, June.
    2. Masten, Scott E & Meehan, James W, Jr & Snyder, Edward A, 1991. "The Costs of Organization," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(1), pages 1-25, Spring.
    3. Andreas Roider, 2002. "Asset Ownership and Contractability of Interaction," Bonn Econ Discussion Papers bgse12_2002, University of Bonn, Germany, revised May 2003.
    4. Schmitz, Patrick W, 2001. "The Hold-up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 1-17, January.
    5. Ugo Pagano, 2000. "Public Markets, Private Orderings and Corporate Governance," ESRC Centre for Business Research - Working Papers wp166, ESRC Centre for Business Research.
    6. Garrouste, Pierre & Saussier, Stephane, 2005. "Looking for a theory of the firm: Future challenges," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 178-199, October.
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