A strategic theory of the firm as a nexus of incomplete contracts: A property rights approach

Jongwook Kim, Joseph T. Mahoney

Research output: Contribution to journalArticle

Abstract

This article maintains that insights gained by joining property rights theory with Austrian economics can contribute to the dynamic capabilities literature by giving context to key constructs in the dynamic capabilities approach, particularly the nature of organizational processes and resource positions. By defining resources and capabilities as bundles of property rights, scholars can theoretically consider how firms develop, deploy, and renew those resources and capabilities by a process of bundling and rebundling resource combinations. Furthermore, central to bundling resource combinations is the contracting process, which generates information that leads to more efficient solutions that are achieved through intense bargaining and ingenuity, that in turn lead to discovery of new economic opportunities. However, in a world of positive transaction costs, the notion of the firm as a nexus of (complete) contracts is less useful for the authors' purposes; rather, the firm is defined as a nexus of incomplete contracts, which enables the possibility of entrepreneurial alertness and ingenuity. Thus, the authors maintain that the contracting process is a form of the entrepreneurial discovery process enabling firms to sense and seize new economic opportunities. Furthermore, the authors suggest that property rights theory informs a contractual process-oriented approach for analyzing how dynamic capabilities are developed, sustained, and rejuvenated and in so doing intertwines firm boundary issues with the capabilities dimension of a strategic theory of the firm.

Original languageEnglish (US)
Pages (from-to)806-826
Number of pages21
JournalJournal of Management
Volume36
Issue number4
DOIs
StatePublished - Jun 18 2010

Fingerprint

Incomplete contracts
Property rights
Theory of the firm
Dynamic capabilities
Resources and capabilities
Property rights theory
Contracting
Bundling
Economics
Resources
Austrian economics
Organizational resources
Alertness
Transaction costs
Capability approach
Organizational processes
Firm boundaries

Keywords

  • Dynamic capabilities
  • Entrepreneurship
  • Incomplete contracts
  • Property rights

ASJC Scopus subject areas

  • Finance
  • Strategy and Management

Cite this

A strategic theory of the firm as a nexus of incomplete contracts : A property rights approach. / Kim, Jongwook; Mahoney, Joseph T.

In: Journal of Management, Vol. 36, No. 4, 18.06.2010, p. 806-826.

Research output: Contribution to journalArticle

@article{728a28eb0f3a47e5b5cfe0e3de9c5952,
title = "A strategic theory of the firm as a nexus of incomplete contracts: A property rights approach",
abstract = "This article maintains that insights gained by joining property rights theory with Austrian economics can contribute to the dynamic capabilities literature by giving context to key constructs in the dynamic capabilities approach, particularly the nature of organizational processes and resource positions. By defining resources and capabilities as bundles of property rights, scholars can theoretically consider how firms develop, deploy, and renew those resources and capabilities by a process of bundling and rebundling resource combinations. Furthermore, central to bundling resource combinations is the contracting process, which generates information that leads to more efficient solutions that are achieved through intense bargaining and ingenuity, that in turn lead to discovery of new economic opportunities. However, in a world of positive transaction costs, the notion of the firm as a nexus of (complete) contracts is less useful for the authors' purposes; rather, the firm is defined as a nexus of incomplete contracts, which enables the possibility of entrepreneurial alertness and ingenuity. Thus, the authors maintain that the contracting process is a form of the entrepreneurial discovery process enabling firms to sense and seize new economic opportunities. Furthermore, the authors suggest that property rights theory informs a contractual process-oriented approach for analyzing how dynamic capabilities are developed, sustained, and rejuvenated and in so doing intertwines firm boundary issues with the capabilities dimension of a strategic theory of the firm.",
keywords = "Dynamic capabilities, Entrepreneurship, Incomplete contracts, Property rights",
author = "Jongwook Kim and Mahoney, {Joseph T.}",
year = "2010",
month = "6",
day = "18",
doi = "10.1177/0149206310363731",
language = "English (US)",
volume = "36",
pages = "806--826",
journal = "Journal of Management",
issn = "0149-2063",
publisher = "SAGE Publications Inc.",
number = "4",

}

TY - JOUR

T1 - A strategic theory of the firm as a nexus of incomplete contracts

T2 - A property rights approach

AU - Kim, Jongwook

AU - Mahoney, Joseph T.

PY - 2010/6/18

Y1 - 2010/6/18

N2 - This article maintains that insights gained by joining property rights theory with Austrian economics can contribute to the dynamic capabilities literature by giving context to key constructs in the dynamic capabilities approach, particularly the nature of organizational processes and resource positions. By defining resources and capabilities as bundles of property rights, scholars can theoretically consider how firms develop, deploy, and renew those resources and capabilities by a process of bundling and rebundling resource combinations. Furthermore, central to bundling resource combinations is the contracting process, which generates information that leads to more efficient solutions that are achieved through intense bargaining and ingenuity, that in turn lead to discovery of new economic opportunities. However, in a world of positive transaction costs, the notion of the firm as a nexus of (complete) contracts is less useful for the authors' purposes; rather, the firm is defined as a nexus of incomplete contracts, which enables the possibility of entrepreneurial alertness and ingenuity. Thus, the authors maintain that the contracting process is a form of the entrepreneurial discovery process enabling firms to sense and seize new economic opportunities. Furthermore, the authors suggest that property rights theory informs a contractual process-oriented approach for analyzing how dynamic capabilities are developed, sustained, and rejuvenated and in so doing intertwines firm boundary issues with the capabilities dimension of a strategic theory of the firm.

AB - This article maintains that insights gained by joining property rights theory with Austrian economics can contribute to the dynamic capabilities literature by giving context to key constructs in the dynamic capabilities approach, particularly the nature of organizational processes and resource positions. By defining resources and capabilities as bundles of property rights, scholars can theoretically consider how firms develop, deploy, and renew those resources and capabilities by a process of bundling and rebundling resource combinations. Furthermore, central to bundling resource combinations is the contracting process, which generates information that leads to more efficient solutions that are achieved through intense bargaining and ingenuity, that in turn lead to discovery of new economic opportunities. However, in a world of positive transaction costs, the notion of the firm as a nexus of (complete) contracts is less useful for the authors' purposes; rather, the firm is defined as a nexus of incomplete contracts, which enables the possibility of entrepreneurial alertness and ingenuity. Thus, the authors maintain that the contracting process is a form of the entrepreneurial discovery process enabling firms to sense and seize new economic opportunities. Furthermore, the authors suggest that property rights theory informs a contractual process-oriented approach for analyzing how dynamic capabilities are developed, sustained, and rejuvenated and in so doing intertwines firm boundary issues with the capabilities dimension of a strategic theory of the firm.

KW - Dynamic capabilities

KW - Entrepreneurship

KW - Incomplete contracts

KW - Property rights

UR - http://www.scopus.com/inward/record.url?scp=77953516822&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=77953516822&partnerID=8YFLogxK

U2 - 10.1177/0149206310363731

DO - 10.1177/0149206310363731

M3 - Article

AN - SCOPUS:77953516822

VL - 36

SP - 806

EP - 826

JO - Journal of Management

JF - Journal of Management

SN - 0149-2063

IS - 4

ER -