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Incomplete Contracts: Foundations and Applications

  • Pei, Di
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    More than twenty years have elapsed since Oliver Hart's Fisher-Schultz lecture on the topic of incomplete contracts. Incomplete contract theory (ICT) has become a rigorous and widely used approach in dealing with various issues. It's applications include firm theory (hierarchies, ownership and control rights, authority,etc.), international trade (judicial quality as comparative advantage, intra-firm trade, etc.), scope of organizations (including the government, see Hart et. al. 1997) and many others. However, it's theoretical foundations have been seriously debated since its first emergence, and even today, the debate is not coming to an end. We will review several significant works on the foundations on ICT, and from comparing their differences in assumptions, methodology and results, we could get some merit on the critical disagreement over these issues, and from these critical disagreements, we could also capture the central ideas for future research on this field. The critical comments on Hart and Moore's 2008 paper about reference point may also suggest that ICT desperately need a solid foundation.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23650.

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    Date of creation: 31 May 2010
    Date of revision: 10 Jun 2010
    Handle: RePEc:pra:mprapa:23650
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    1. Eric Maskin & John Moore, 1998. "Implementation and renegotiation," LSE Research Online Documents on Economics 19350, London School of Economics and Political Science, LSE Library.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
    3. repec:oup:restud:v:66:y:1999:i:1:p:115-38 is not listed on IDEAS
    4. Klaus M. Schmidt, 1990. "The Costs and Benefits of Privatization," Discussion Paper Serie A 287, University of Bonn, Germany.
    5. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
    6. repec:oup:qjecon:v:109:y:1994:i:4:p:841-79 is not listed on IDEAS
    7. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July.
    8. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February.
    9. repec:oup:restud:v:66:y:1999:i:1:p:39-56 is not listed on IDEAS
    10. Schmidt, Klaus M, 1996. "The Costs and Benefits of Privatization: An Incomplete Contracts Approach," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 1-24, April.
    11. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-82, March.
    12. repec:oup:restud:v:66:y:1999:i:1:p:57-82 is not listed on IDEAS
    13. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
    14. repec:oup:restud:v:66:y:1999:i:1:p:139-49 is not listed on IDEAS
    15. repec:oup:restud:v:66:y:1999:i:1:p:83-114 is not listed on IDEAS
    16. 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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