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Abstract:
This entry discusses alternative theories of contract choice and design with special emphasis on (i) the interaction between contract design and contract enforcement and (ii) the explanatory power of alternative theories. After discussing the primary functions of contract, the entry reviews the assumptions and implications for contract design of the three dominant approaches to contracting in economics. An overview of the empirical literature on contracting and contractual choice identifies the main empirical regularities and their relation to the theory. A final section addresses implications for contract law and enforcement and directions for future research.

Abstract:
This entry discusses alternative theories of contract choice and design with special emphasis on (i) the interaction between contract design and contract enforcement and (ii) the explanatory power of alternative theories. After discussing the primary functions of contract, the entry reviews the assumptions and implications for contract design of the three dominant approaches to contracting in economics. An overview of the empirical literature on contracting and contractual choice identifies the main empirical regularities and their relation to the theory. A final section addresses implications for contract law and enforcement and directions for future research.

Abstract:
This paper explores the functions and limitations of democratic governance by analyzing the allocation of decision-making authority in colleges and universities. Contrary to the conventional perception that large numbers and heterogeneity of voters and issues undermine the efficiency of democratic decision making, data on the allocation of authority for thirty-one decision areas in 826 US colleges and universities show democratic governance to be more prevalent in larger, "full-service" research universities than in smaller liberal arts colleges and special-curriculum institutions. State- and church-affiliated institutions, meanwhile, tend to be governed more like firms. The results overall are consistent with economic theories of political organization that view democratic governance primarily as a means of enhancing the credibility of commitments rather than as a method of aggregating preferences.

Abstract:
This paper explores the functions and limitations of democratic governance by analyzing the allocation of decision-making authority in colleges and universities. Contrary to the conventional perception that large numbers and heterogeneity of voters and issues undermine the efficiency of democratic decision making, data on the allocation of authority for thirty-one decision areas in 826 US colleges and universities show democratic governance to be more prevalent in larger, "full-service" research universities than in smaller liberal arts colleges and special-curriculum institutions. State- and church-affiliated institutions, meanwhile, tend to be governed more like firms. The results overall are consistent with economic theories of political organization that view democratic governance primarily as a means of enhancing the credibility of commitments rather than as a method of aggregating preferences.

higher education, organization, governance, democracy, authority

Abstract:
This paper explores the functions and limitations of democratic governance by analyzing the allocation of decision-making authority in colleges and universities. Contrary to the conventional perception that large numbers and heterogeneity of voters and issues undermine the efficiency of democratic decision making, data on the allocation of authority for thirty-one decision areas in 826 U.S. colleges and universities show democratic governance to be more prevalent in larger, full-service research universities than in smaller liberal arts colleges and special-curriculum institutions. State- and church-affiliated institutions, meanwhile, tend to be governed more like firms. The results overall are consistent with economic theories of political organization that view democratic governance primarily as a means of enhancing the credibility of commitments rather than as a method of aggregating preferences.

higher education, organization, governance, democracy, authority

Abstract:
Unlike other public utilities, most water in the United States is supplied by publicly owned and operated waterworks. The predominance of the public sector in the supply of water was not always the case, however; private firms dominated U.S. water supply throughout most of the nineteenth century. This paper analyzes the puzzle of why water and sanitation systems were the only major utilities to become predominantly public by re-examining historical accounts of the problems of contracting for water services in light of modern theories of economic organization and, then, evaluating hypotheses derived from those accounts using data on 373 waterworks serving U.S. municipalities with populations over 10,000 in 1890. Among other results, municipal ownership is found to be related to the distribution of population and commerce within a city in ways that suggest the importance of contractual frictions between cities and private water companies as a factor in the shift to public ownership.

Public utilities

Abstract:
This paper considers a class of contracts in which parties write detailed, long-term performance obligations that leave one or both parties with broad discretion to terminate the agreement on short notice with little or no penalty. I argue that formal contracts may be valuable, even where trade involves little or no relationship-specific investment and termination is the only remedy, as a way of economizing on the cost of determining prices for a series of heterogeneous transactions. Evidence from a survey of truck drivers shows both the general structure of contracts between freight carriers and drivers and the manner in which hauls are priced to be consistent with the goal of economizing on renegotiation costs.

Abstract:
This paper considers a class of contracts in which parties write detailed, long-term performance obligations yet leave one or both parties broad discretion to terminate the agreement on short notice with little or no penalty. If the purpose of formal contracting is to make agreements legally enforceable, why would transactors go to the trouble of specifying complex price and performance obligations that either party can walk away from at will? The paper shows that formal contracts may be valuable, even where termination is the only sanction available to the parties, as a way of economizing on the cost of determining prices for a series of heterogeneous transactions. The theory is then used to analyze the structure of contracts between freight carriers and drivers and, in particular, the means by which haul prices are determined. Both the overall structure and pricing arrangements in these contracts support the proposition that ex post bargaining costs can affect the use and design of contracts even in the absence of significant relationship-specific investments.

contracting, price determination, negotiation costs, self-enforcement

Abstract:
In the standard durable-goods-quality model (e.g., Klein and Leffler, 1981; Shapiro, 1982, 1983), the prospect of repeat sales is often adequate to support the provision of high-quality durable goods even when quality is not observable at the time of purchase. We show that when durable goods require costly post-sale service, a reputational equilibrium may not exist at any price, even with a flow of profitable new sales indefinitely into the future. More generally, we characterize the size of the premium needed to make promises to provide post-sale service self enforcing. We then apply the model to United Shoe Machinery, IBM, and Xerox, using historical records to estimate the self-enforcing post-sale service premia that would have been necessary for each of these companies.

reputation, durable goods, post-sale service

Abstract:
This paper considers functions of contracting other than the protection of relationship-specific investments and the provision of marginal incentives, and applies the theory to explain variation in the form of compensation of over-the-road truck drivers in the U.S. Specifically, we argue that contracts in this industry serve to economize on the costs of price determination for heterogeneous transactions. We show that the actual terms of those contracts vary systematically with the nature of hauls in a way that is consistent with the theory. By contrast, we find that vehicle ownership, which defines a driver's status as an owner operator or company driver, depends on driver, but not trailer or haul, characteristics.