The paper analyzes how the choice of organizational structure leads to the best compromise between controlling behavior based on authority rights and minimizing costs for implementing high efforts. Concentrated delegation and hierarchical delegation turn out to be never an optimal compromise. If...

We analyze in an incomplete contracts model whether a supplier should be integrated if in addition to his investment level he chooses the intensity of specialization towards the buyer's needs. A basic trade-off arises: While non-integration leads to higher investment incentives, potential...

We reconsider Tirole's framework of a three-tier principal-agent problem, in which he has shown that an incentive problem is caused by the possibility of monetary side payments between the agent and the middle -level supervisor. We consider the case where monetary transfers are not possible, but...

In the economic literature on market competition, firms are often modeled as single decision makers and the internal organization of the firm is neglected (unitary player assumption). However, as the literature on strategic delegation suggests, one can not generally expect that the behavior of...

The present paper aims to contribute to the literature on the foundations of incomplete contracts by providing conditions under which simple delegation of authority is the solution to the complete-contracting problem of the parties. We consider a hold-up framework where both parties profit from...

This note points out the differences between conducting several projects within one big firm (common ownership) and conducting each project within an independent firm (separate ownership).

In a property-rights framework, I study how organizational form and quantity contracts interact in generating investment incentives. The model nests standard property-rights and hold-up models as special cases. I admit general message-dependent contracts, but provide conditions under which...

This paper addresses the question of delegation in a partial contracting set-up, where only the control over actions is contractible. We consider an organization that should take two decisions, affected by a common state of the world parameter only known by the agent. We show that, if the...

The property-rights theory assumes that trade is non-contractible ex-ante and focusses exclusively on the allocation of property-rights. We derive foundations for this focus on property-rights by identifying scenarios where only one of the simple ownership structures is optimal even though trade...

When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling “expectation damages” close to legal practice, we show that the default remedy of contract law induces the ?rst best. Yet, in order to...