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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
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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.

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

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