The Theory of the Firm as Governance Structure: From Choice to Contract

Abstract

The propositions that organization matters and that it is susceptible to analysis were long greeted by skepticism by economists. One reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why. The prevalence of the science of choice approach to economics has also been an obstacle. As developed herein, the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract. This paper examines economic organization from a science of contract perspective, with special emphasis on the theory of the firm.