Title: Institutional Choice: A Contract-Theoretic Approach
Abstract: This paper distinguishes various settings according to what kind of contracts they allow for. The same model of sequential binary choice is used to illuminate different aspects of the contract-theoretic approach to transaction costs economics. Selective intervention as the notion which leads to Williamson's Puzzle is explored in a framework of incomplete contracts. It is shown that agents committed by contracts that are second-best or worse cannot safely be relied upon to administer selective intervention. In a final section, the model is used critically to revisit the theory of ownership structure which is due to Grossman and Hart (1986).
Keywords: Coase Theorem, incomplete contracts, transaction costs, policy failure
Creation-Date: April 1992
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