This paper provides a framework for addressing the question of when transactions should be carried out within a firm and when through the market. Following Grossman and Hart, we identify a firm with the assets that its owners control. We argue that the crucial difference for party 1 between...

We develop a model of hierarchies based on the allocation of authority. A firm's owners have ultimate authority over a firm's decisions, but they have limited time or capacity to exercise this authority. Hence owners must delegate authority to subordinates. However, these subordinates also have...

The paper characterises the choice rules that can be implemented when agents are unable to commit themselves not to renegotiate the mechanism.

In the last few years, a new area has emerged in economic theory, which goes under the heading of 'incomplete contracting'. However, almost since its inception, the theory has been under attack for its lack of rigorous foundations. In this paper we evaluate some of the criticisms that have been...

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 the...

There are two parts to this paper. Part One introduces the subject of implementation, and provides applications (in particular, to the theory of contracts). This part is written so as to be accessible to the general reader. Part Two surveys the literature, and is somewhat more formal.

We propose a new bankruptcy procedure. Initially, a firm's debts are cancelled, and cash and non-cash bids are solicited for the "new" (all-equity) firm. Former claimants are given shares, or options to buy shares, in the new firm on the basis of absolute priority. Options are exercised once the...

The paper compares co-operative governance structure to outside ownership. The distinction between the two lies in who has residual rights of control. It is found that a co-operative becomes relatively less efficient as the environment becomes more competitive, and the interests of members...