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The Impact of Incomplete Contracts on Economics$
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Philippe Aghion, Mathias Dewatripont, Patrick Legros, and Luigi Zingales

Print publication date: 2016

Print ISBN-13: 9780199826223

Published to Oxford Scholarship Online: January 2016

DOI: 10.1093/acprof:oso/9780199826223.001.0001

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Grossman-Hart (1986) as a Theory of Markets

Grossman-Hart (1986) as a Theory of Markets

(p.17) 2 Grossman-Hart (1986) as a Theory of Markets
The Impact of Incomplete Contracts on Economics

Bengt Holmström

Oxford University Press

This chapter suggests that GH could be construed as a theory of markets rather than a theory of the firm. Indeed, GH is the first theory that explains why markets are critical for organization choice, and that the virtue of market transactions stems from the hold-up power conferred by ownership. The chapter argues that for this reason GH provides, in particular, a novel answer to Williamson’s puzzle of selected intervention—why integrated firms cannot always replicate a market outcome.

Keywords:   markets, hold-up, selected intervention

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