Corporate Governance and Contractual Governance: A Model
Business groups,Public company,Relationship Specific investment,Agency
Economy and Society
In this paper we propose a formalised model which describes the trade-off problems faced by a firm desiring to create a structure of governance that deals both with the problems of supervising the work of its managers (corporate governance) and with the transactional problems arising from its contractual relations with other stakeholders, in particular suppliers and clients (contractual governance). The public company and the business group stylise two alternative solutions to this problem. Our model recognises the fact that there may be different mechanisms of governance in different industries, historical periods or countries, and that these may be modified as a result of technological shocks, changes in the rate of growth in demand, or innovations introduced by some companies in the production chain.