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There is a tension between the literatures on incomplete contracting and transactions cost economics regarding the importance of ex post governance and the extent to which formal theories of incomplete contracting capture salient aspects of exchange relations. In this paper, we empirically examine how firms structure joint R&D agreements to illuminate how contracts can be incomplete and how governance can matter. We employ a dataset of 96 contracts to construct a taxonomy of the types of mechanisms firms use in organizing collaborative R&D, and indicate how groups of mechanisms line up with various types of contracting hazards. The results suggest that the allocation of property rights over innovations at the time of contracting between R&D partners is an important aspect of contract design. But they also suggest that weak property rights admit scope for other dimensions of contract. In particular, the research indicates that while knowledge spillovers may give rise to appropriability hazards, efforts to contain or channel knowledge spillovers may enable joint venture members to strategically block other members’ follow-on commercialization or research. Firms design joint R&D governance mechanisms to balance spillover hazards and strategic blocking.

The purpose of this paper is to present a simple model to demonstrate how a trade‐off between incomplete contract distortions and excessive governance costs determine an agricultural firm's organizational choices.

In this paper, it is argued that the perishable nature of products exaggerates the incomplete contract distortion, such that products with a short biological production cycle (e.g. eggs) are likely to be operated under vertical integration, products with a medium cycle (e.g. poultry) are likely to be operated under product contracts, and products with a long cycle (e.g. pork) are likely to be operated under marketing contracts.

This model helps explain why vertical integration dominates the US egg industry, why product contracts are prevalent in the turkey industry, and why marketing contracts have become common in the pork industry. The implications from this model are also applicable to other sectors and other countries, including China's agricultural sectors.

This paper illustrates that perishable products are more vulnerable to opportunism, because the incomplete contract distortion is exaggerated by the perishable nature of the products. However, a local government can reshape firms' choices of vertical coordination by improving its legal infrastructure to reduce the incomplete contract distortions and then weaken the role of the perishable nature of products, so that contracting (product or marketing) may take place. Note that agricultural producers benefit more in selling their products through product/marketing contracts than spot markets.

Adversarial contracting methods are used for most public infrastructure procurement and timely delivery on budget remains a problem. In the past 20 years, OECD countries have adopted a number of alternative procurement methods that are based on collaborative principles including public private partnerships, long-term outsourcing arrangements and relationship/alliance contracts. We review the theoretical principles that operate for both adversarial and collaborative contracting methods. We identify the characteristics of non-adversarial contracting methods such as the output specification, qualitative selection criteria, the alignment of incentives, discrete allocation of residual control rights, life cycle costing, and risk-weighted value for money measurement that are delivering better procurement outcomes for government.

Shareholders and managers can work in a hierarchy in which principals attempt to control the actions of agents to achieve the wealth objective. Alternatively, shareholders and managers can work together as a cooperative team in which shareholders provide financial capital and managers provide human capital. The authors aim to examine the different implications for value creation provided by the two approaches.

By comparing the literature on the value implications of the incomplete contracting framework and control arrangements in principal-agent hierarchies, the authors identify deviations from optimal outcomes and suggest solutions.

The review indicates that a cooperative framework has some advantages over the hierarchical model. The stability of human capital and the relationship between managers and shareholders can be enhanced when shareholders provide capital in increments which vest over time and latitude for renegotiation of agreements is built into contracts.

By surrendering control using stock options programmes, managers are free to invest in relationship-specific assets. Shareholders can control the provision of capital by withdrawing investment if insufficient returns are realized, i.e. if stock options do not meet vesting requirements. The market can then be left to do its work.

This paper provides an original review of literature on cooperation and hierarchies in the shareholder–manager relationship and proposes solutions to identified deviations from optimal outcomes.

Although electronic commerce (e‐commerce) can be a source of competitive advantage, will e‐commerce businesses in countries like China flourish when governments still take a “wait‐and‐see attitude” as to prompting, protecting, and regulating e‐commerce? The paper employs transaction cost economics in analyzing the role of government in regulating electronic contracting. Due to the transaction costs arising from e‐commerce, explicit contracts between parties are usually incomplete. The paper argues that these contracts should always be backed by implicit contracts, which are determined by default rules in various governments. Therefore, it behoves governments urgently to fill gaps in incomplete contracts in e‐commerce in order to foster a predictable legal environment for e‐businesses, minimize legal risks and transaction costs, and maximize economic and social benefits. The authors believe that governments must also act in concert with one another at the international level to create a favorable and consistent commercial environment.

There exists a tremendous number of studies in strategy and management journals concerning contracting issues between private firms. Those studies are usually grounded in competing theoretical frameworks such as transaction cost economics, the resource-based view of the firm, incentive and agency theories and few others. However, very few studies, especially in those reviews (this is also true to a lesser extent in economic journals), are concerned with the issue of contracting between private firm and government. This is particularly surprising since existing theoretical frameworks qualified to tackle contracting strategies between private firms can also provide insights into issues related to contracting with government.

This paper is prompted by the dissatisfaction of developing countries regarding the grant of special and differential treatment (SDT) under the legal framework of the World Trade Organisation (WTO). As a result of such dissatisfaction, the Doha Round of multilateral trade negotiations explicitly called for a review of such treatment with a view to making it more precise, effective and operational. This mandate has not yet been met to the satisfaction of many developing countries. This paper aims to provide an alternative way of examining and evaluating the contestation which exists regarding SDT in the WTO.

This paper uses the conceptual framework provided by the economic contract theory and in particular, the concept of the incomplete contract to provide a scaffold for analysing SDT. This approach is intended to offer insights beyond those elucidated so far in the literature on the topic.

This paper, by using an economic contract theory approach, finds that SDT is constructed as an incomplete contract. Furthermore, the suboptimal outcomes associated with incomplete contracts are apparent in the constitution of SDT. This finding is useful in both an evaluative and programmatic sense, providing us with an alternative entry point to explain some of the shortcomings with SDT, as well as garnering us with a useful conceptual tool to think upon how SDT can be improved.

The paper contributes to the literature on SDT within the WTO in particular and differential treatment in international law in general. Drawing on literature on the WTO as an incomplete contract, the paper provides an original frame for analyzing SDT and draws attention, in particular, to the utility of the economic contract theory as a programmatic and evaluative frame for SDT and differential treatment more generally.

New business models, such as life‐cycle contracting, challenge the narrow and static understanding of contracts with hard and precise terms. The aim of this paper is to examine how flexibility could be incorporated into contracting processes.

The data of the paper have been gathered applying the triangular method; first, by interviewing key personnel participating in contracting at eight Finnish firms; second, examining contract and other documents of those companies; and third, studying earlier research on contracting practices. Theoretically, the paper is based on relational contract and proactive approaches to law on the one hand and on organizational studies based on new institutional economics on the other.

Flexibility is often introduced to contracts with relational methods, relying on good personal relationships between business partners or negotiation power and negotiation skills. Contract documents often do not contain mechanisms for dealing with contingencies, or “soft” contract terms. The paper finds the following reasons that may explain this. First, firms heavily rely on model contracts to develop their own templates and the lack of contract models in new business areas hinders firms to develop their templates. Second, unfamiliarity with using soft elements makes it difficult to use them. Additionally, in some cases firms may prefer using relational capability.

The findings need verification from further multidisciplinary empirical research.

The findings support firms in developing their contracting capabilities to meet the requirements of the changing business environment and gain competitive advantage from well‐organized contracting.

This paper is one of the first empirical studies comprising also the legal approach.

Contract incompleteness with deficiency, inconsistency, defectiveness, and ambiguity in contract clauses, which can cause misunderstandings and misinterpretations, may result with disputes in projects. This study aims to investigate contract incompleteness factors with a hybrid fuzzy multi-criteria decision approach.

Contract incompleteness factors were ranked by fuzzy VIKOR (Visekriterijumska Optimizacija I Kompromisno Resenje) method, and the most significant factors were subjected to fuzzy decision-making trial and evaluation laboratory (DEMATEL) to examine their causal relationships. The study is not limited to ranking the identified factors solely, since their cause-effect interactions are also essential for proper risk management in construction projects.

Hybrid use of multi-criteria analysis reveals that ambiguity in enforceability including excessive demands and significant amendments in the scope of works are the top two causal contract incompleteness factors, while lack of implementation details and focus of focal point, and insufficient supporting and technical documents are the most affected ones.

Contractual causes of disputes due to contract incompleteness factors other than requirements of the contracts have been rarely investigated in the literature. The research is one of the first studies in the literature investigating the causal relationship among factors in construction contracts, which might lead to project disputes. Findings are expected to improve contract drafting, eventually contributing to effective risk management in construction projects.

This paper explores the relationship between fairness in contracting and the creation of budgetary slack. A laboratory experiment was performed in which privately informed subjects were compensated under either a truth-inducing or slack-inducing incentive contract. Contracting processes were either fair or unfair as defined by procedural justice theory (Leventhal, 1980; Lind & Tyler, 1988). Under the slack-inducing contract, subjects exposed to the fair contracting process created significantly less slack than subjects exposed to the unfair contracting process. Slack created by subjects compensated under the truth-inducing contract was low and insensitive to the fairness or unfairness of the contracting process employed.