Firms, Incomplete Contracts and Organizational Learning

This explorative report proposes that the main problem of economic organization is adaptation to unforeseen contingencies. Nevertheless, flexibility is a fairly ignored issue in the theory of economic organization. This contrasts with much organization theory, where the seeking and processing of information about the organization’s key uncertainties is viewed as a determinant of organizational form. The idea of unfinished contracts is argued to give a way to bridging ideas from organizational economics and organization theory, especially organizational learning. Incomplete contracts aren’t just crucial since they provide room for incentive problems, but moreover as they allow firms to take advantage of processes of organizational learning that must always involve some unforeseen contingencies. Firms are considered as efficient institutional responses to learning processes which involve strongly complementary problem-solving activities.

This report links up with the materials on economic organization, however in contrast to this literature is founded on knowledge-based premises. Instead of conceptualizing the firm as an entity which is mainly kept together by transaction cost minimization, it attempts to extend the view of the firm as an entity whose main function is to acquire, combine, utilize and upgrade knowledge…

Source: Copenhagen Business School

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