Contracts of Society and Firm-like Organization
Abstract: Drawing on organization theory , organizational economics and law the paper argues that the ‘nature of the firm’ can be more completely understood if the firm is considered a particular case in a more general class of ‘contracts of society’, allowing the discovery of unknown streams of actions (projects and tasks), complemented by constitutional pacts on fair procedures for the selection of actions – rather than a nexus of incomplete transactional contracts complemented by authority or power. Empirical evidence from published studies as well as from newly gathered data on firm founding and project-based alliance contracts (500 record database) document that actual contracts under uncertainty do fit the hypothesized pattern. This view offers an explanation of the nature of ‘firm-like’ organization that is independent of the particular governance regime adopted (authority-based or other), and rooted in the governance of knowledge in addition to the governance of conflict of interests.
