The paper asserts that introducing endogenous outside options in the standard incomplete contract framework might reverse some of the main conclusions on incomplete contracts enforcement and on the nature of the firm drawn by the New Institutional Economists. In particular, the explanations of the firm provided by the New Property Rights school (the GHM model) are based on the assumption that agents outside options are not affected by human capital investments. When outside options are endogenous, in order to maximise contractual power in a transactional exchange and/or to increase market share, agents will then be induced to invest a greater amount of economic resources than the neo-classical ideal-type requires. Bilateral enforcement mechanisms are thus affected by the actions selected by agents in order to deter a competitorís entry, and viceversa, competition strategies are affected by the economic incentives promoted by parties for the enforcement of contractual obligations. We label such a complex institutional context cross competition. Such a framework provides an alternative explanation of the firm which helps to understand the diversity of institutional arrangements observed in different economic systems, and suggests that the co-existence of alternative governance structures of the firm could represent a second best response to the market failures which arise in a "cross competition" context.

Endogenous Outside Options Incomplete Contracts and the Nature of the Firm / Nicita, Antonio. - In: QUADERNI DEL DIPARTIMENTO DI ECONOMIA POLITICA. - ISSN 1720-9668. - STAMPA. - 250:(1999), pp. 1-27.

Endogenous Outside Options Incomplete Contracts and the Nature of the Firm

NICITA, ANTONIO
1999

Abstract

The paper asserts that introducing endogenous outside options in the standard incomplete contract framework might reverse some of the main conclusions on incomplete contracts enforcement and on the nature of the firm drawn by the New Institutional Economists. In particular, the explanations of the firm provided by the New Property Rights school (the GHM model) are based on the assumption that agents outside options are not affected by human capital investments. When outside options are endogenous, in order to maximise contractual power in a transactional exchange and/or to increase market share, agents will then be induced to invest a greater amount of economic resources than the neo-classical ideal-type requires. Bilateral enforcement mechanisms are thus affected by the actions selected by agents in order to deter a competitorís entry, and viceversa, competition strategies are affected by the economic incentives promoted by parties for the enforcement of contractual obligations. We label such a complex institutional context cross competition. Such a framework provides an alternative explanation of the firm which helps to understand the diversity of institutional arrangements observed in different economic systems, and suggests that the co-existence of alternative governance structures of the firm could represent a second best response to the market failures which arise in a "cross competition" context.
1999
01 Pubblicazione su rivista::01a Articolo in rivista
Endogenous Outside Options Incomplete Contracts and the Nature of the Firm / Nicita, Antonio. - In: QUADERNI DEL DIPARTIMENTO DI ECONOMIA POLITICA. - ISSN 1720-9668. - STAMPA. - 250:(1999), pp. 1-27.
File allegati a questo prodotto
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/541801
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact