Chapter 2. Aspects of the Economics of Organization with Application to Corporate Governance

This chapter provides a critical review and survey of aspects of formal and informal contracting particularly relevant to the study of corporate governance. Two types of modeling, hidden-information agency and informal (relational) contracting that are perhaps under-utilized in governance research are covered, as well as the more commonly used hidden-action agency model. The strengths and weaknesses of these models, their sometimes contradictory predictions, and their relation to empirical work are all touched upon.