Who should have the control right in the organization?

This article provides two application of incomplete contract theory to real life problems. In the privatization of public service sectors, we show that the coexistence of private and public ownership is better than either privatizing all firms or let all of them to stay un-privatized, because private and public ownership usually provide different price-quality combination of services, and the coexistence makes full use of the competition and enriched choice set. In the divisional structure in an organization, we show why the coexistence of two divisions performing the same task is less likely to be seen than the coexistence of two firms producing the same goods in the market. In one organization, it is always better for the principal (the top manager or headquarter of the organization) to integrate these divisions and assign the control right to the agent whose interest is more in line with her own. This is not the case only when there is negative externality between the efforts of the agents, or when the principal wants to encourage the agent of lower interest congruence to search more in order to get more efficiency-enhancing bargaining.