Hostname: page-component-7dd5485656-c8zdz Total loading time: 0 Render date: 2025-10-31T14:45:36.824Z Has data issue: false hasContentIssue false
  • English
  • Français

Asset commitment, constitutional governance and the nature of the firm

Published online by Cambridge University Press:  20 May 2010

ANNA GRANDORI
ANNA GRANDORI*
Affiliation:
Bocconi University, Milan, Italy
*
*Email: anna.grandori@unibocconi.it
Get access Rights & Permissions [Opens in a new window]

Abstract:

Integrating organization theory, organizational economics, and organizational law considerations, it is argued that the ‘nature of the firm’ can be more completely understood if it is considered a complete society-establishing contract, including constitutional pacts on procedures for the selection of actions, rather than a nexus of incomplete transactional contracts complemented by authority, power, or relational norms. The explanation is more general since firm-establishing contracts are a sub-set of those society-establishing contracts that are capable of regulating any venture in condition of high uncertainty and potential conflict, and because the constitutional regime adopted (authority-based, democratic, or other) becomes a specification of particular types of firms rather than part of the explanation of the firm. Evidence from published studies, as well as from newly gathered data on firm-founding contracts and other partnership establishing contracts (500 record database on large multi-party projects), document that actual contracts under uncertainty do fit the hypothesized pattern.

Information

Type
Research Article
Information
Journal of Institutional Economics , Volume 6 , Issue 3 , September 2010 , pp. 351 - 375
Copyright
Copyright © The JOIE Foundation 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Al-Najjar, N. I. (1995), ‘Incomplete Contracts and the Governance of Complex Contractual Relationships’, American Economic Review Papers and Proceedings, 85 (2): 432–436.Google Scholar
Alvarez, S. A. and Barney, J. B. (2007), ‘Guest Editors’ Introduction: The Entrepreneurial Theory of the Firm’, Journal of Management Studies, 44 (7): 1057–1063.CrossRefGoogle Scholar
Aoki, M. (2004), ‘Comparative Institutional Analysis of Corporate Governance’, in Grandori, A. (ed.), Corporate Governance and Firm Organization, Oxford: Oxford University Press.Google Scholar
Bagdadli, S., Solari, L., Usai, A., and Grandori, A. (2003), ‘The Emergence of Career Boundaries in Unbounded Industries: Career Odysseys in the Italian New Economy’, International Journal of Human Resources Management, 15: 788–808.CrossRefGoogle Scholar
Baharami, H. (1996), ‘The Emerging Flexible Organization: Perspectives from the Silicon Valley’, in Myers, P. S. (ed.), Knowledge Management and Organization Design, Boston: Heinemann.Google Scholar
Baker, G., Gibbson, R., and Murphy, K.J. (2002), ‘Relational Contracts and the Theory of the Firm’, Quarterly Journal of Economics, February: 39–84.CrossRefGoogle Scholar
Battigalli, P. and Maggi, G. (2002), ‘Rigidity, Discretion, and the Costs of Writing Contracts’, American Economic Review, 92 (4): 798–817.Google Scholar
Bernheim, B. D. and Whinston, M. D. (1998), ‘Incomplete Contracts and Strategic Ambiguity’, American Economic Review, 88 (4): 902.Google Scholar
Blair, M. (2004), ‘The Neglected Benefits of the Corporate Form: Entity Status and the Separation of Asset Ownership from Control’, in Grandori, A. (ed.), Corporate Governance and Firm Organization: Microfoundations and Structural Forms, New York: Oxford University Press.Google Scholar
Brouwer, M. (2005), ‘Managing Uncertainty through Profit Sharing Contracts From Medieval Italy to Silicon Valley’, Journal of Management and Governance, 9 (3–4).Google Scholar
Burns, T. and Stalker, G. M. (1961), The Management of Innovation, London: Tavistock Publications.Google Scholar
Coase, R. (1937), ‘The Nature of the Firm’, Economica, 4: 386–405.CrossRefGoogle Scholar
Crocker, K. and Reynolds, K. (1993), ‘The Efficiency of Incomplete Contracts: An Empirical Analysis of Air Force Engine Procurement’, RAND Journal of Economics, 24: 126–146.Google Scholar
Demsetz, H. (1991), ‘The Theory of the Firm Revisited’, in Williamson, O. and Winter, S. (eds.), The Nature of the Firm: Origins, Evolution and Development, Oxford: Oxford University Press, pp. 159–178.CrossRefGoogle Scholar
Foss, N. J. and Klein, P. J. (2002), Entrepreneurship and the Theory of the Firm, Aldershot: Edward Elgar.Google Scholar
Fried, C. (1981), Contract as Promise, Cambridge, MA: Harvard University Press.Google Scholar
Furlotti, M. (2007), ‘Inter-Firm Contracts as an Organizational Phenomenon’, Ph.D. Thesis, Bocconi University, Milan.Google Scholar
Goldberg, V. P. (1976), ‘Regulation and Administered Contracts’, Bell Journal of Economics, 7: 426–448.Google Scholar
Goldberg, V. P. (1980), ‘Bridges over Contested Terrain: Exploring the Radical Account of the Employment Relationship’, Journal of Economic Behavior Organization, 1: 249–274.CrossRefGoogle Scholar
Grandori, A. and Soda, G. (1995), ‘Inter-Firm Networks: Antecedents, Mechanisms and Forms’, Organization Studies, 16 (2): 183–214.CrossRefGoogle Scholar
Grandori, A. (2006), ‘Innovation, Uncertainty and Relational Governance’, Industry and Innovation, 13 (2): 127–133.CrossRefGoogle Scholar
Grandori, A. (2008), ‘Poliarchic Governance and the Growth of Knowledge’, in Foss, N. J. and Michailova, S. (eds.), Knowledge Governance, Oxford: Oxford University Press.Google Scholar
Grandori, A. and Furlotti, M. (2006), ‘The Bearable Lightness of Inter-firm Strategic Alliances: Resource-based and Procedural Contracting’, in Ariño, A. and Reuer, J. (eds.), Strategic Alliances: Governance and Contracts, London: Palgrave.Google Scholar
Grossman, S. and Hart, O. (1986), ‘The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration’, Journal of Political Economy, 94: 691–719.Google Scholar
Gustafsson, V. (2006), Entrepreneurial Decision Making, Edward Elgar.Google Scholar
Hagedoorn, J. and Hesen, G. (2007), ‘Contract Law and the Governance of Inter-Firm Technology Partnerships: An Analysis of Different Modes of Partnering and Their Contractual Implications’, Journal of Management Studies, 44 (3): 342–366.CrossRefGoogle Scholar
Hansmann, H. (1996), The Ownership of the Enterprise, Cambridge: Belknap Press.Google Scholar
Hansmann, H. and Kraakman, R. (2000), ‘The Essential Role of Organizational Law’, Yale Law Journal, 110 (3): 387–440.Google Scholar
Hansmann, H., Kraakman, R., and Squire, R. (2006), ‘Law and the Rise of the Firm’, Harvard Law Review, 119 (5): 1333–1403.Google Scholar
Harrison, J. S. and Freeman, R. E. (eds.) (2004), ‘Democracy in and around Organizations’, Academy of Mangement Executive, Special Issue 18(3).Google Scholar
Hart, O. (1988), ‘Incomplete Contracts and the Theory of the Firm’, Journal of Law, Economics and Organization, 4 (l): 119–140.Google Scholar
Hart, O. (1995), Firm, Contracts, and Financial Structure, Oxford: Clarendon Press.Google Scholar
Hart, O. and Moore, J. (1990), ‘Property Rights and the Nature of the Firm’, The Journal of Political Economy, 8 (6): 1119–1158.CrossRefGoogle Scholar
Hart, O. and Moore, J. (1999), ‘Foundations of Incomplete Contracts’, Review of Economic Studies, 66: 115–138.CrossRefGoogle Scholar
Hedlund, G. (1986), ‘The Hypermodern Corporation: A Heterarchy?’, Human Resource Management, 25 (1): 9–35.CrossRefGoogle Scholar
Herbst, P. G. (1976), Alternatives to Hierarchy, Leiden: Martinus Nijhoff.CrossRefGoogle Scholar
Hodgson, G. (2002), ‘The Legal Nature of the Firm and the Myth of the Firm-Market Hybrid’, International Journal of the Economics of Business, 9 (1): 37–60.Google Scholar
Holmstrom, B. and Roberts, J. (1998), ‘The Boundaries of the Firm Revisited’, Journal of Economic Perspectives, 12 (4): 73–94.Google Scholar
Kaplan, S. N. and Strömberg, P. (2003), ‘Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts’, Review of Economic Studies, 70 (2): 281–315.Google Scholar
Kaplan, S. N. and Strömberg, P. (2004), ‘Characteristics, Contracts and Actions: Evidence from Venture Capitalist Analyses’, Journal of Finance, 59 (5): 2177–2210.Google Scholar
Kaplan, S. N., Sensoy, B. A., and Strömberg, P. (2009), ‘Should Investors Bet on the Jockey or on the Horse? Evolution of Firms from Early Business Plans to Public Companies’, Journal of Finance, 64 (1): 75–115.CrossRefGoogle Scholar
Klein, B. (2000), ‘The Role of Incomplete Contracts in Self-Enforcing Relationships’, Revue d'Economie Industrielle, 92: 67–80.CrossRefGoogle Scholar
Klein, B., Crawford, R., and Alchian, A. (1978), ‘Vertical Integration, Appropriable Rents, and the Competitive Contracting Process’, Journal of Law and Economics, 21: 297–326.CrossRefGoogle Scholar
Knight, F. H. (1921), Risk, Uncertainty and Profit, Boston: Houghton Mifflin.Google Scholar
Kreps, D. M. (1990), ‘Corporate Culture and Economic Theory’, in Alt, E. and Shepsle, K. E. (eds.), Perspectives on Positive Political Economy, Cambridge: Cambridge University Press.Google Scholar
Kreps, D. M. (1992), ‘Static Choice in the Presence of Unforeseen Contingencies’, in Dasgupta, P., Gale, D., Hart, O. D., and Maskin, E. (eds.), Economic Analysis of Markets and Games: Essays in Honor of Frank Hahn, Cambridge, MA: MIT Press.Google Scholar
Lerner, J. and Merges, R. P. (1998), ‘The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry’, The Journal of Industrial Economics, 46: 125–156.Google Scholar
Lindkvist, L. (2004), ‘Governing Project Based Firms: Promoting Market-Like Processes within Hierarchies’, Journal of Management and Governance, 8 (1): 3–25.CrossRefGoogle Scholar
Loasby, B. (1976), Choice, Complexity and Ignorance, Cambridge: Cambridge University Press.Google Scholar
Lundin, R. A. and Soderholm, A. (1995), ‘A Theory of the Temporary Organization’, Scandinavian Journal of Management, 11 (4): 437–455.CrossRefGoogle Scholar
Macaulay, S. (1963), ‘Non-contractual Relations in Business: A Preliminary Study’, American Sociological Review, 28 (1): 55–67.Google Scholar
Macneil, I. R. (1978), ‘Contracts: Adjustment of Long-Term Economic Relationships under Classical, Neo-Classical and Relational Contract Law’, Northwestern University Law Review, 72: 854–906.Google Scholar
Masten, S. E. (1996), ‘A Legal Basis for the Firm’, in Buckley, P. J. and Michie, J. (eds.), Firms, Organizations and Contracts, Oxford: Oxford University Press.Google Scholar
Miles, R. E. et al. (1997), ‘Organizing in the Knowledge Age: Anticipating the Cellular Form’, Academy of Management Executive, 11 (4): 7–21.Google Scholar
Milgrom, P. and Roberts, J. (1995), ‘Complementarities and Fit: Strategy, Structure and Organizational Change in Manufacturing’, Journal of Accounting and Economics, 19: 179–208.Google Scholar
Miller, G. J. (1992), Managerial Dilemmas: The Political Economy of Hierarchy, Cambridge: Cambridge University Press.Google Scholar
Nagel, E. (1963), ‘Assumptions in Economic Theory’, American Economic Review, Papers and Proceedings, 53: 211–219.Google Scholar
Orr, R. J. (2006), ‘Living Agreements for a Risky World’, Harvard Business Review, April.Google Scholar
Penrose, E. (1959), The Theory of the Growth of the Firm, New York: Wiley.Google Scholar
Perrow, C. (1967), ‘A Framework for the Comparative Analysis of Organization’, American Sociological Review, 32: 194–208.Google Scholar
Popper, K. R. (1935), Der Logik der Forschung, Vienna (The Logic of Scientific Discovery, London: Hutchinson, 1959).Google Scholar
Poppo, L. and Zenger, T. R. (2002), ‘Do Formal Contracts and Relational Governance Function as Substitutes or Complements?’, Strategic Management Journal, 23: 707–725.CrossRefGoogle Scholar
Richardson, G. B. (1972), ‘The Organization of Industry’, The Economic Journal (September): 883–896.CrossRefGoogle Scholar
Ring, P. Smith and Van de Ven, A. H. (1992), ‘Structuring Cooperative Relationships between Organizations’, Strategic Management Journal, 13: 483–498.CrossRefGoogle Scholar
Shackle, G. L. (1972), Epistemics and Economics, Cambridge: Cambridge University Press.Google Scholar
Simon, H. A. (1951), ‘A Formal Theory of the Employment Relationship’, Econometrica, 19: 293–305.CrossRefGoogle Scholar
Simon, H. A. (1969), The Sciences of the Artificial, Cambridge, MA: MIT Press.Google Scholar
Suchman, M. C. (1994), ‘On Advice of Counsel: Law Firms and Venture Capital Funds as Information Intermediaries in the Structuration of Silicon Valley’, Doctoral Dissertation, Stanford University.Google Scholar
Thagard, P. and Croft, D. (1999), ‘Scientific Discovery and Technological Innovation: Ulcers, Dinosaurs Extinction, and the Programming Language Java’, in Magnani, L., Nersessian, N. J., and Thagard, P. (eds.), Model-based Reasoning in Scientific Discovery, Dordrecht: Kluwer Academic Publishers.Google Scholar
Thompson, J. D. (1967), Organization in Action, New York: McGraw-Hill.Google Scholar
Thompson, J. D. and Tuden, A. (1959), ‘Strategies, Structures and Processes of Organizational Decision’, in Thompson, J. D., Hammond, P. B., Hawkes, R. W., Junker, B. H., and Tuden, A. (eds.), Comparative Studies in Administration, Pittsburgh: University of Pittsburgh Press, pp. 195–216.Google Scholar
Tirole, J. (1999), ‘Incomplete Contracts: Where Do We Stand?’, Econometrica, 67 (4): 741–781.Google Scholar
Vanberg, V. J. (1994), Rules and Choice in Economics, London: Routledge.Google Scholar
Van de Ven, A. H., Delbecq, A. L., and Koenig, R. (1976), ‘Determinants of Coordination Modes within Organization’, American Sociology Review, 41: 322–338.Google Scholar
Wernerfelt, B. (1984), ‘A Resource-Based View of the Firm’, Strategic Management Journal, 5 (2): 171–180.Google Scholar
Williamson, O. E. (1975), Markets and Hierarchies: Analysis and Antitrust Implications, New York: Free Press.Google Scholar
Williamson, O. E. (1986), ‘Economics and Sociology: Promoting a Dialogue’, 8th EGOS Colloquium, Antwerp.Google Scholar
Williamson, O. E. (1979), ‘Transaction Cost Economics: the Governance of Contractual Relations’, Journal of Law and Economics, 22: 233–261.CrossRefGoogle Scholar