Firms, Incomplete Contracts and Organizational Learning

Druid Working Paper No. 96-2

26 Pages Posted: 8 Feb 1998

See all articles by Nicolai J. Foss

Nicolai J. Foss

Copenhagen Business School - Department of Strategy and Innovation

Date Written: April 1996

Abstract

This explorative paper argues that the central problem of economic organization is adaptation to unforeseen contingencies. However, flexibility is a rather neglected issue in the theory of economic organization. This contrasts with much organization theory, in which the seeking and processing of information about the organization's key uncertainties is seen as a determinant of organizational form. The notion of incomplete contracts is argued to provide a means to bridging ideas from organizational economics and organization theory, particularly organizational learning. Incomplete contracts are not only important because they provide room for incentive problems, but more importantly because they allow firms to exploit processes of organizational learning that must always involve some unforeseen contingencies. Firms are seen as efficient institutional responses to learning processes that involve strongly complementary problem-solving activities.

JEL Classification: D23, L14, D83

Suggested Citation

Foss, Nicolai J., Firms, Incomplete Contracts and Organizational Learning (April 1996). Druid Working Paper No. 96-2, Available at SSRN: https://ssrn.com/abstract=57966 or http://dx.doi.org/10.2139/ssrn.57966

Nicolai J. Foss (Contact Author)

Copenhagen Business School - Department of Strategy and Innovation ( email )

Kilen
Frederiksberg, 2000
Denmark

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