Incomplete Contracts and Firm Boundaries: New Directions

摘要

The seminal work by Grossman and Hart (1986 "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration", 94 Journal of Political Economy 691-19.) made the study of firm boundaries susceptible to formal economic analysis, and illuminated an important role for markets in providing incentives. In this essay, I discuss some new directions that the literature has taken since. As a central challenge, I identify the need to provide a formal theory of the firm in which managerial direction and bureaucratic decision-making play a key role. Merging a number of existing incomplete contracting models, I propose two approaches with very different contracting assumptions. As in transaction cost economics, a central element in those theories is the presence of a central office that directs and coordinates the actions of subordinates. More novel, I highlight the superior ability of nonintegrated firms to adapt to a changing environment.