The Economics of Adaptation and Long-term Relationships

Do institutions matter in economic theory? Or is the economic analysis of institutions a distraction from the most important action? Indeed, does Vernon Smith’s notion of the “institution-free core” of formal economic theory encompass that most important action? Would that render an “economics of organization” almost devoid of economic content?

The author takes up an approach that is more agnostic, inter-disciplinary and even a little irreverent. What can theory do and not do? Theory can stimulate questions about how parties manage competing demands for commitment and flexibility in their relationships but what blind spots persist? The book opens with an informal tour of the economics of system design out of which an economics of adaptation ultimately emerged. It then offers explorations, via the application of the economics of adaptation in both law and economics’ relating to how parties manage relationships within the firm, within the context of long-term contracts and, most vividly, within the context of antitrust conspiracy.

Advanced undergraduates, graduate students and teaching faculty in economics, public policy, management and law will find the book relevant, as it maps out connections between literatures that are not often made explicit. For historians of economic thought the book lays out a much richer understanding of what the economics of organization is (and is not), and situates it next to design economics.