Centre de recherche en économie de Grenoble

Abstract: if contracts were perfect then there would be no need for bosses (Coase, 1937), so a key task for visible hands is to do what formal contracts cannot—such as "build an equilibrium." But if this task were easy then one would not expect the persistent performance differences have become a striking feature of many empirical analyses. There are many models where parties use "relational contracts" to improve their performance, and some of these models produce persistent performance differences, but the parties are in equilibrium from the beginning. Organizational economics needs models of building an equilibrium.