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Firms, Incomplete Contracts and Organizational Learning

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  • Nicolai J. Foss

Abstract

This explorative paper argues that the central problem of economic organization is adaptation to unforeseen contingencies. However, flexibility is a rather neglected issue in the theory of economic organization. This contrasts with much organization theory, in which the seeking and processing of information about the organization's key uncertainties is seen as a determinant of organizational form. The notion of incomplete contracts is argued to provide a means to bridging ideas from organizational economics and organization theory, particularly organizational learning. Incomplete contracts are not only important because they provide room for incentive problems, but more importantly because they allow firms to exploit processes of organizational learning that must always involve some unforeseen contingencies. Firms are seen as efficient institutional responses to learning processes that involve strongly complementary problem-solving activities.

Suggested Citation

  • 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.
  • Handle: RePEc:aal:abbswp:96-2
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    References listed on IDEAS

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    1. Richardson, G B, 1972. "The Organisation of Industry," Economic Journal, Royal Economic Society, vol. 82(327), pages 883-896, September.
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    6. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-785, July.
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    9. George P. Huber, 1991. "Organizational Learning: The Contributing Processes and the Literatures," Organization Science, INFORMS, vol. 2(1), pages 88-115, February.
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    More about this item

    Keywords

    The theory of economic organization; incomplete firm contracts; organizational learning; t;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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