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Implicit Contracts and the Theory of the Firm

Author

Listed:
  • George Baker
  • Robert Gibbons
  • Kevin J. Murphy

Abstract

We analyze the role of implicit contracts' (that is, informal agreements supported by" reputation rather than law) both within firms, for example in employment relationships between them, for example as hand-in-glove supplier relationships. We find that the optimal" organizational form is determined largely by what implicit contracts it facilitates. Among other" things, we also show that vertical integration is an efficient response to widely varying supply" prices. Finally, our model suggests why management' (that is, the development and" implementation of unwritten rules and codes of conduct) is essential in organizations. "

Suggested Citation

  • George Baker & Robert Gibbons & Kevin J. Murphy, 1997. "Implicit Contracts and the Theory of the Firm," NBER Working Papers 6177, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6177
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    References listed on IDEAS

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    1. Klein, Benjamin, 1996. "Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships," Economic Inquiry, Western Economic Association International, vol. 34(3), pages 444-463, July.
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    7. MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-480, March.
    8. Kole, Stacey R., 1997. "The complexity of compensation contracts," Journal of Financial Economics, Elsevier, vol. 43(1), pages 79-104, January.
    9. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
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    Citations

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    Cited by:

    1. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, "undated". "What Determines Firm Size?," CRSP working papers 496, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    2. Lewin-Solomons, S., 2000. "Innovation and Authority in Franchise Systems: An Empirical Exploration of the Plural Form," Cambridge Working Papers in Economics 0015, Faculty of Economics, University of Cambridge.
    3. Carstensen, Vivian, 1999. "Beschäftigungssicherung durch Arbeitszeitflexibilisierung," Hannover Economic Papers (HEP) dp-228, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    4. Patrick Francois & Joanne Roberts, 2003. "Contracting Productivity Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(1), pages 59-85.
    5. Raghuram G. Rajan & Luigi Zingales, 1998. "The Governance of the New Enterprise," CRSP working papers 487, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    6. Marco Guerrazzi & Pier Giuseppe Giribone, 2022. "The dynamics of working hours and wages under implicit contracts," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1075-1094, October.
    7. Christophe Moussu, 2000. "Endettement, accords implicites et capital organisationnel : vers une théorie organisationnelle de la structure financière," Revue Finance Contrôle Stratégie, revues.org, vol. 3(2), pages 167-196, June.
    8. Leiponen, Aija, . "Essays in the Economics of Knowledge: Innovation, Collaboration, and Organizational Complementarities," ETLA A, The Research Institute of the Finnish Economy, number 31, June.
    9. William P. Osterberg & James B. Thomson, 1999. "Banking consolidation and correspondent banking," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 9-20.
    10. Azid, Toseef & Asutay, Mehmet & Burki, Umar, 2007. "Theory Of The Firm, Management And Stakeholders: An Islamic Perspective," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 15, pages 1-30.
    11. Chisari, Omar O. & Ferro, Gustavo, 2009. "Gobierno Corporativo: los problemas, estado actual de la discusión y un ejercicio de medición para Argentina [Corporate Governance: the problems, the current stage of the discussion and a measureme," MPRA Paper 15630, University Library of Munich, Germany.
    12. Antonio Nicita, 2004. "Il pendolo delle riforme nei sistemi sanitari europei," Working Papers CERM 05-2004, Competitività, Regole, Mercati (CERM).
    13. Fan, Joseph P. H., 2000. "Price uncertainty and vertical integration: an examination of petrochemical firms," Journal of Corporate Finance, Elsevier, vol. 6(4), pages 345-376, December.
    14. Christophe Moussu, 2000. "Endettement, accords implicites et capital organisationnel: vers une théorie organisationnelle de la structure financière," Working Papers CREGO 1000602, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.

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