We consider an economy that has to decide how assets are to be used. Agents have ideas, but these ideas conflict. We suppose that decision-making authority is determined by hierarchy. Specifically, each asset has a chain of command, and the most senior person in the chain exercises authority. If...

We are concerned with the design of a constitution for a firm - an ex-ante contract which assigns residual rights of control (and possibly residual income rights) without reference to the issue to be decided. We focus attention on two polar constitutions: nonprofit cooperatives and outside...

We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i.e., these are “ruled out”. Ex post, they freely bargain over outcomes on the list, i.e., the contract specifies no mechanism to structure their choice; in this sense outcomes on...

We argue that a contract provides a reference point for a trading relationship: more precisely, for parties’ feelings of entitlement. A party’s ex post performance depends on whether he gets what he is entitled to relative to outcomes permitted by the contract. A party who is shortchanged...