The project advances the frontiers of the economic theory of the firm. The project can be divided into the following five sub-parts. First, the project continues to determine just when long-term incentive contracts can be replaced by a series of simpler short-term contracts. This is important because modern economic organization theory rests on the hypothesis that organizations emerge on account of the incompleteness of market contracts. Second, in modern economies, much of the coordination between successive stages of production are managed, rather than arranged more loosely through the price system. The project analyzes the role played by non-price communications within a firm and between a firm and its suppliers. Third, the project develops a theory of long-term contracting as a way of avoiding the transaction costs associated with negotiating efficiently short-term contracts period after period. Fourth, the project expands the investigation of rent seeking to encompass both public and private sector organizations. Property rights are emphasized. A person's property rights to a desirable job, a house, or a favorable office location, serve (among other functions) to limit the authority of others over that property. Such rights will discourage person B from attempting to grab person A's property and reduce A's need to protect the property, leaving more time available for productive activities for both parties. This framework is used to explore the failure of "zero base budgeting" systems, in which departments have no property rights to their budgets but must justify every penny each year. Fifth, the last topic is monitoring in infinitely repeated games ("supergames") with incomplete information. Supergames are used to analyze the different kinds of small scale interactions that arise on a frequent basis in firms and markets, i.e., keeping promises and being helpful if one's partner does the same.
