THE ECONOMICS OF THE FIRM AND CONTRACTS - A SELECTIVE SURVEY

This paper surveys the literature on economic institutions such as contracts and firms. The key advantage of this survey is that it integrates three distinct, but inter-related literatures. The first branch of this literature is the early, less formal work of WILLIAMSON [1975], [1985], the second is the rigorous theoretical analyses of more recent vintage including GROSSMAN and HART [1986] and TIROLE [1986], and the third is recent empirical work. The survey highlights how all of this literature focuses on contracting problems. The early literature focused on how specific assets created contracting problems, while the more rigorous recent literature has developed a more explicit treatment of incomplete contracts. The empirical work has provided broad support for the theories, but more recent theories generally have yet to receive careful tests. More empirical work in this area is clearly needed.