3.6 Conclusion
Like the principal-agent and transaction-cost frameworks that preceded it, the theory of incomplete contracts provides a framework for thinking about efficient approaches to organisational structures and decision-making. As it has been elaborated in the literature over the past two decades, the theory of incomplete contracts explains ownership as the allocation of decision rights, explains decision rights as critical in the context of contractual incompleteness (which includes the inability to write complete incentive contracts) and explains the boundaries of the firm as determined by the efficient scope of ex ante decision rights, not by transaction costs created by ex post bargaining about the allocation of returns from specific investment. The approach lends itself well to comparative analysis of institutions and decision-making frameworks, but is less easily linked to empirical tests, and does not provide simple off-the-shelf solutions to complex questions of policy and management.
