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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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    File URL: https://mpra.ub.uni-muenchen.de/23650/1/MPRA_paper_23650.pdf
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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 & Jean Tirole, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 83-114.
    2. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Eric Maskin & John Moore, 1998. "Implementation and renegotiation," LSE Research Online Documents on Economics 19350, London School of Economics and Political Science, LSE Library.
    4. Klaus M. Schmidt, 1990. "The Costs and Benefits of Privatization," Discussion Paper Serie A 287, University of Bonn, Germany.
    5. 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.
    6. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1994. "Renegotiation design with unverifiable information," ULB Institutional Repository 2013/9591, ULB -- Universite Libre de Bruxelles.
    7. Oliver Hart & John Moore, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 115-138.
    8. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July.
    9. Ilya Segal, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 57-82.
    10. 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.
    11. 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.
    12. Paul R. Milgrom., 1987. "Employment Contracts, Influence Activities and Efficient Organization Design," Economics Working Papers 8741, University of California at Berkeley.
    13. 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.
    14. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 841-879.
    15. Eric Maskin & Jean Tirole, 1999. "Two Remarks on the Property-Rights Literature," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 139-149.
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