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Incentives Between Firms (and Within)

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  • Robert Gibbons

    (Sloan School of Management and Department of Economics, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, Massachusetts 02142)

Abstract

This paper reviews the significant progress in Üagency theoryÝ (i.e., the economic theory of incentives) during the 1990s, with an eye toward applications to supply transactions. I emphasize six recent models, in three pairs: (1) new foundations for the theory of incentive contracts, (2) new directions in incentive theory, and (3) new applications to supply transactions. By reviewing these six models, I hope to establish three things. First, the theory of incentive contracts needed and received new foundations. Second, new directions in incentive theory teach us that incentive contracts are not the only source of incentives. Finally (and especially relevant to supply transactions), the integration decision is an instrument in the incentive problem.

Suggested Citation

  • Robert Gibbons, 2005. "Incentives Between Firms (and Within)," Management Science, INFORMS, vol. 51(1), pages 2-17, January.
    • Handle: RePEc:inm:ormnsc:v:51:y:2005:i:1:p:2-17
    DOI: 10.1287/mnsc.1040.0229
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