Incomplete Contracts and the Theory of the Firm
9 June 2011 at 5:37 am Peter G. Klein 6 comments
| Peter Klein |
A very useful survey article from the Spring 2011 Journal of Economic Perspectives: “Incomplete Contracts and the Theory of the Firm: What Have We Learned over the Past 25 Years?” by Philippe Aghion and Richard Holden. From the introduction:
In the first section of this paper, we spell out Grossman and Hart’s argument using a simple numerical example, then then we show how the incomplete contracts approach can be extended beyond the firms’ boundaries issue to analyze firms’ internal organization; firms’ financial decisions; the costs and benefits from privatization; and the organization of international trade between inter- and intrafirm trade. In the second section, we discuss several criticisms of the incomplete contracts/property rights methodology, especially what we call the “implementation criticism,” and then we briefly review some recent developments of the incomplete contracts approach.
I plan to use it in “Economics of Institutions and Organizations” this fall.
Update: Thanks to Stéphane Saussier for the pointer to the upcoming conference, Grossman and Hart at 25, June 24-26 in Brussels.
Entry filed under: - Klein -, Conferences, New Institutional Economics, Recommended Reading, Strategic Management, Theory of the Firm.
Organizations and Markets 
1.
Saussier | 9 June 2011 at 10:10 am
I think this paper is part of those given at the June 23rd -25th conference in honor of the 25 years of Grossman & Hart’s paper.
http://www.ecares.org/index.php?option=com_events&task=view_detail&agid=613&year=2011&month=6&day=24&Itemid=306&catids=34
I will be there… !
2.
Peter Klein | 9 June 2011 at 10:34 am
Looks like a great conference. You’ll be tired from ISNIE, however. :)
3.
David Gerard | 9 June 2011 at 1:19 pm
The AEA is simplifying my course reading list. Oliver Hart has a not-so-favorable review of Daniel Spulber’s new book in the latest JEL, “Thinking about the Firm: A Review of Daniel Spulber’s The Theory of the Firm.”
“I have described what I see as some of the key issues in the theory of the firm and also how this topic is dealt with in Daniel Spulber’s book. The overlap is not great.”
4.
Peter Klein | 9 June 2011 at 1:31 pm
Indeed, did I forget to blog that one? http://scholar.harvard.edu/sites/scholar.iq.harvard.edu/files/oliverhart/files/reviewofspulberstheory-firm.pdf
5.
David Gerard | 9 June 2011 at 1:36 pm
Perhaps that’s where I saw it?
6. TCE and PRT: Compare, Contrast and Critique | OBSERVABLE & VERIFIABLE | 28 June 2011 at 6:01 am
[…] celebrated the 25th anniversary of the groundbreaking work of Grossman and Hart (1986) (HT to Peter Klein). As a strategy student and a great admirer of the property rights school, I […]