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The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration
Our theory of costly contracts emphasizes that contractual rights can be of two types: specific rights and residual rights. When it is costly to list all specific rights over assets in the contract,
Property Rights and the Nature of the Firm
This paper provides a framework for addressing the question of when transactions should be carried out within a firm and when through the market. Following Grossman and Hart, we identify a firm with
The free-rider problem and the theory of the corporation
A spray gun especially adapted for dispensing foam type plastics or other coating materials which is characterized by two feed lines for the coating materials which are encased in return lines with
Most analyses of the principal-agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent’s utility being at a stationary point. An
A Theory of Debt Based on the Inalienability of Human Capital
Consider an entrepreneur who needs to raise funds from an investor, but cannot commit not to withdraw his human capital from the project. The possibility of a default or quit puts an upper bound on
The Market Mechanism as an Incentive Scheme
It is often argued that competition in the product market reduces managerial slack. We formalize this idea. Suppose that there is a common component to firms' costs, i.e., as one firm's (total and
Debt Enforcement around the World
Insolvency practitioners from 88 countries describe how debt enforcement will proceed against an identical hotel about to default on its debt. We use the data on time, cost, and the likely
Vertical integration and market foreclosure
Supported by the MIT Energy Lab, the Guggenheim Foundation, the Olin Foundation, the National Science Foundation, the Taussig Visiting Professorship at Harvard and the Marvin Bower Fellowship at the
Corporate Governance: Some Theory and Implications
A. Why Corporate Governance Does not Matter in the Absence of Agency Problems In the absence of agency problems, all individuals associated with an organisation can be instructed to maximise profit
Incomplete Contracts and Renegotiation
When drawing up a contract, it is often impracticable to specify all the relevant contingencies, and so contracts are typically incomplete. This paper considers the extent to which these gaps migh t