THE THEORIES OF INCOMPLETE CONTRACTS IN ANALYZING THE COMPANY

Abstract

Incomplete contracts theories have developed significantly in recent decades, although insistence for rigorous models left little room for empirical research. By formalizing and extending some results from other theories such as transaction costs, incomplete contracts theory tries to analyze the prudence displayed by the parties before the possible opportunistic behavior that would follow completing a contract, especially in the case of specific investments and how the insufficient contractual protection measures can lead to inefficient levels of investment. Even the name - incomplete contracts theory- suggests that the main concern is to consider the limits of contracts, that the contracts fail to specify not only the investment ex ante, but also many other unforeseen items that may appear ex post, and that would be desirable to be introduced in such an arrangement. Explanations can be either the bounded rationality or excessive cost that would involve writing of such contracts.\r\nThis paper is part of the doctoral thesis on Integrate perspective on companies sector, coordinated by professor Ph.D. Alina Bãdulescu from University of Oradea, Faculty of Economics. \r\n

Keywords

• corporate governance, incomplete contracts, transaction costs, property rights