Perspectives from New Institutional Economics
Edited by Claude Ménard
Chapter 17: Enforcement procedures and governance structures: what relationship?
Claude Ménard* INTRODUCTION Analysis of contractual arrangements plays a highly important role in recent theoretical developments in economics. The centrality of contracts in understanding the diversity of institutional arrangements began in the research program initiated by Coase (1937, 1960) and implemented by new institutional economics, and is now widespread throughout economic literature. There are two primary approaches to the analysis of contracts. The ﬁrst, well illustrated by the theory of complete contracts, emphasizes the formal analysis of contracts; in particular, determining conditions that would be required for an optimal contract, that is, one that could be fundamentally selfenforcing. Theorists of this approach focus primarily on ex ante factors, that is, on the a priori conditions that clauses must meet for a contract to be efﬁcient. The second approach considers most contracts as incomplete, so that their implementation and enforcement necessitate devices for ﬁlling in the blanks and for imposing external constraints on the partners involved. This is the view developed by, among others, Williamson (1985, ch. 2, section 3), who emphasized the differences between ex ante and ex post conditions: if agreements are reached that allow the development of complementary assets, unanticipated circumstances arising ex post can open the possibility for opportunistic behavior, making enforcement difﬁcult and pushing partners towards adjustments or conﬂicts. In this process, the institutional embeddedment of contracts becomes a central issue. The purpose of this chapter is to explore further certain characteristics of enforcement procedures and their relationship to governance structures, in...
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