Markets and Hierarchies and (Mathematical) Economic Theory

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Abstract
Over the past decade transaction-cost economics has been partially translated in the more mathematical language of game theory, and understanding of the costs of transactions has been deepened, refined and extended. But the translation is incomplete: a great deal of human behaviour is missed, and doing game theory with more life-like models of individuals will bring theory closer to phenomena. Transaction-cost economics, particulary the economics of relational contracts, provides a major arena for these developments, since the important issues of bounded rationality and individual behavior are central to the topic.

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