We discuss the literature on vertical relationships between firms from a contract-theoretic perspective.

This paper illustrates in a simple model how the presence of asymmetric information can make it impossible to achieve ex post efficient trade decisions in negotiations.

This paper provides a non-technical discussion of the incomplete contracting approach to the theory of the firm developed by Grossman and Hart (1986). This approach offers an answer to the questions regarding the boundaries of the firm first raised by Coase (1937).

This article considers a bilateral externality problem, in which injurers and victims choose activity levels and levels of care. The incentive effects of liability rules and fines for harm done are analyzed. It is shown that in general socially optimal behaviour can only be induced if fines are...

In this paper we discuss the role of private information in buyer - seller relationships. We distinguish between pre- and postcontractual asymmetric information. In each case, we discuss the role of the bargaining protocol and we explore whether it is possible to achieve the first-best outcome.

The theory of contracts is one of the most active research areas in economics. While classic contract theory failed to account for institutions such as property rights and authority, the theory of incomplete contracts has overcome these conceptual problems and produced a variety of interesting...

In this paper we discuss "lock in effects" and "hold-up problems" (which occur when relationship-specific investments are sunk).