Incomplete Contracts: Foundations and Applications

Di Pei

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: incomplete contracts; unforeseen contingencies; unverifiable; renegotiation; property rights; transaction costs; complexity; implementation mechanism (search for similar items in EconPapers)
JEL-codes: D23 D86 (search for similar items in EconPapers)
Date: 2010-05-31, Revised 2010-06-10
New Economics Papers: this item is included in nep-bec and nep-hpe
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