This paper investigates the economic role of modularity in the design of new products and processes. We construct a formal model of the design process based on the financial theory of options, and analyze the benefits and costs of breaking apart a complex design into independent modules linked...

Our goal in this paper is to explain the location of transactions (and contracts) in a larger system of production. We first characterize the system as a network of tasks and transfers. While transfers between agents are necessary and ubiquitous, the mundane transaction costos of standardizing,...