Contracts versus Assets and the Boundary of the Firm

34 Pages Posted: 25 Jan 2012

See all articles by Richard Holden

Richard Holden

Massachusetts Institute of Technology (MIT); National Bureau of Economic Research (NBER)

Anup Malani

University of Chicago - Law School; University of Chicago Pritzker School of Medicine; Resources for the Future; National Bureau of Economic Research (NBER)

Date Written: January 5, 2012

Abstract

Both asset ownership and contracts play important roles in providing incentives for relationship specific investments, and hence in determining the boundary of the firm. Significant progress has been made in understanding the roles that these instruments play, but largely in isolation from each other. We provide a framework for understanding when assets or contracts are, practically, the optimal instrument to use. We distinguish between one- and two-sided investments, and cooperative and selfish investments. We also offer some new insights on how contracts may be made renegotiation-proof.

Keywords: Incomplete contracts, firms mechanisms

JEL Classification: D20

Suggested Citation

Holden, Richard and Malani, Anup, Contracts versus Assets and the Boundary of the Firm (January 5, 2012). Available at SSRN: https://ssrn.com/abstract=1990550 or http://dx.doi.org/10.2139/ssrn.1990550

Richard Holden (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

E52-410
50 Memorial Drive
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Anup Malani

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-9602 (Phone)
773-702-0730 (Fax)

HOME PAGE: http://www.law.uchicago.edu/faculty/malani/

University of Chicago Pritzker School of Medicine

Chicago, IL 60637
United States

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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