NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Reference Points and the Theory of the Firm

Oliver D. Hart

NBER Working Paper No. 13481*
Issued in October 2007
NBER Program(s):   CF    LE

In this article I argue that it has been hard to make progress on Coase's theory of the firm agenda because of the difficulty of formalizing haggling costs. I propose an approach that tries to move things forward using the idea of aggrievement costs, and apply it to the question of whether a transaction should be placed inside a firm (in-house production) or in the market place (outsourcing).

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