The Firm as a Multicontract Organization |
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Authors: | Jean-Jacques Laffont David Martimort |
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Institution: | IDEI and GREMAQ Universite de Toulouse I 31042 Toulouse Cedex, France;IDEI and ESR-INRA 31326 Castanet-Tolosan Cedex, France |
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Abstract: | The firm is often considered as a nexus of contracts linking the management and its different stakeholders: claim-holders, workers, unions, customers, suppliers, and the state, among others. This paper surveys recent work in contract theory, the multiprincipal incentive theory, and the theory of side contracts, which provides some insights into the structure of those contracts and therefore into the structure of the firm. First, we discuss the incomplete contracting assumptions underlying these variations of the usual grand contract approach. Second, we explain how the theoretical lessons learned from this work—the distribution of contracting rights, the power of incentive schemes within organizations, and the design of communication channels—apply to the theory of the firm. |
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