Conclusions

This chapter has briefly outlined the main features of incomplete contracts and their relevance for law and economics research. While the standard literature on incomplete contracts is mainly concerned with the hold-up problem, the analysis of Fisher Body v.

Notes

1. On the tautology contained in the Coase theorem, see Usher (1998).

2. A complete contract is thus a contract whose terms are also observable to third parties. According to Shavell (2003): ‘A contract will be said to be completely specified (or simply complete) if the list of conditions on which the actions are based is explicitly exhaustive, that is, if the contract provides literally for each and every possible condition in some relevant universe of conditions.

3. This entry will focus on the first approach. For a survey of the debate concerning the foundation of incomplete contracts, see Hart and Moore (1999); Maskin and Moore (1999); Maskin and Tirole (1999); MacLeod (2002).

4. Williamson (1979, 234, n. 3) defines opportunism as ‘self-interest seeking with guile. This includes but is scarcely limited to more blatant forms, such as lying, stealing and cheating. Opportunism more often involves subtle forms of deceit.... More generally, opportunism refers to the incomplete or distorted disclosure of information, especially to calculated efforts to mislead, distort, obfuscate, or otherwise confuse’. For a critique of this notion of opportunism, see Bowles and Gintis (1993).

5. The most-favoured nation clause meant that Fisher would be prevented from charging General Motors a higher price than that charged to other customers. The meeting-competi­tion clause implied that Fisher was prevented from charging a price higher than the average market price for the autobodies.

6. Aluminum Co. of America v. Essex Group, Inc., 499 F.Supp. 53 (W.D. Pa. 1980).

7. The original explanation for the merger between Fisher Body and General Motors due to Klein et al. (1978) has recently been debated by several scholars who pointed out that GM controlled 60 per cent of Fisher Body’s shares several years before Fisher Body’s refusal to comply with GM’s requests.

8. For a survey on the economic notion of property rights, see also Libecap (2002).

9. This conclusion integrates the Coasean theory of the firm and the Coase theorem. Accord­ing to Coase (1937), when transaction costs matter, market exchange is replaced by internalized transactions within firms, and firms are characterized by long-term contracts governed by authority relationships. According to Coase (1960), when transaction costs are relevant, the initial assignment of property rights matters for the purpose of efficiency.

10. Only some recent papers are explicitly concerned with investment decisions in a market environment, as Chatterjee and Chiu (1999) and de Meza and Lockwood (1998). The analysis of contractual enforcement in a market context is also studied by MacLeod and Malcomson (1993) and Bolton and Whinston (1993).

11. According to Commons, every economic exchange implies alienation and acquisition of property rights in a commodity, whereas the word ‘commodity’ identifies not only the merely possession of a physical thing but also a ‘lawful ownership’ (1970: 48-9).

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