In the paper the trade-offs among endogenous transaction costs caused by two-sided moral hazard, exogenous monitoring cost, and economies of specialization are specified in a Grossman, Hart, and Moore (GHM) model to absorb Maskin and Tirole's recent critique and Holmstrom and Milgrom's criticism...

We formalize a conception of authority, which is commonly defined as the right of controlling a person's actions embedded in human assets in sociology. Due to the inalienable property of human assets, the contractible formal authority is hard to verify and enforce, while real authority usually...

We analyze the optimal decision-making hierarchy in an organization when decision-makers of limited liability have preferences conflicting with the organization's objective and exert externalities on their counterparts. In a horizontal hierarchy, every decision is made by a different agent. In a...

We model non-binding retail-price recommendations (RPRs) as a communication device facilitating coordination in vertical supply relations. Assuming both repeated vertical trade and asymmetric information about production costs, we show that RPRs may be part of a relational contract,...

Can formal contracts help resolving the holdup problem? We address this important question by studying the holdup problem in repeated transactions between a seller and a buyer in which the seller can make relation-specific investments in each period. In contrast to previous findings, we...