The central theme of research unit A1 is transaction cost economics. On the one hand the intention is to further develop the contract theoretical approach to transaction cost economics. We use this approach in order to explain simple real world governance structures and incentive schemes which often rely on non-financial incentives. On the other hand we try to apply this approach to various questions in the theory of the firm and the theory of political economy such as: What is the relationship between a firm’s financial contracts and its strategy when competing in the product market? What are the reasons for the incompleteness of contracts? (Breuer, Schils, Schmitz, Schuhmacher, Schweizer). What are the merits of federalism as compared to centralism? What limits the extent of redistribution in a democracy? What determines the degree of (de)centralization in politics? What are the merits of a representative as compared to a direct democracy? (Grüner, Kessler, Schils, Schweizer).
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