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Incomplete Contracts and Economic Organization Brian Loasby and the Theory of the Firm

  • Nicolai J. Foss

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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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
Contact details of provider: Web page: http://www.druid.dk/

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  1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  2. Mathias Dewatripont & Patrick Bolton, 2004. "The firm as a communication network," ULB Institutional Repository 2013/9599, ULB -- Universite Libre de Bruxelles.
  3. Foss, Nicolai J, 1997. "On the Rationales of Corporate Headquarters," Industrial and Corporate Change, Oxford University Press, vol. 6(2), pages 313-38, March.
  4. Brian J. Loasby, . "The Organisation of Capabilities," Working Papers Series 96/6, University of Stirling, Division of Economics.
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  11. Paul Milgrom & John Roberts, 1988. "Economic Theories of the Firm: Past, Present, and Future," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 444-58, August.
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  13. Brian J Loasby, 1994. "Understanding Markets," Working Papers Series 94/4, University of Stirling, Division of Economics.
  14. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. 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, vol. 21(2), pages 297-326, October.
  16. Moore, John, 1992. "The firm as a collection of assets," European Economic Review, Elsevier, vol. 36(2-3), pages 493-507, April.
  17. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, volume 1, number 5474, April.
  18. Radner, Roy, 1996. "Bounded Rationality, Indeterminacy, and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 106(438), pages 1360-73, September.
  19. Richardson, G B, 1972. "The Organisation of Industry," Economic Journal, Royal Economic Society, vol. 82(327), pages 883-96, September.
  20. Brian J. Loasby, 1989. "The Mind and Method of the Economist," Books, Edward Elgar, number 288, July.
  21. Kreps, David M, 1996. "Markets and Hierarchies and (Mathematical) Economic Theory," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 561-95.
  22. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
  23. Oliver Hart & Bengt Holmstrom, 1986. "The Theory of Contracts," Working papers 418, Massachusetts Institute of Technology (MIT), Department of Economics.
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