Hart, Oliver, and Bengt Holmstrom. 2010. “A Theory of Firm Scope.” Quarterly Journal of Economics CXXV (2): 483-513. Abstract

The formal literature on firm boundaries has assumed that ex post conflicts are resolved through bargaining. In reality, parties often simply exercise their decision rights. We develop a model, based on shading, in which the use of authority has a central role. We consider two firms deciding whether to adopt a common standard. Nonintegrated firms may fail to coordinate if one firm loses. An integrated firm can internalize the externality, but puts insufficient weight on employee benefits. We use our approach to understand why Cisco acquired StrataCom, a provider of new transmission technology. We also analyze delegation.

Hart, Oliver. 2009. “Hold-up, Asset Ownership, and Reference Points.” Quarterly Journal of Economics 124 (1): 267-300. Abstract

We study two parties who desire a smooth trading relationship under condi- tions of value and cost uncertainty. A contract fixing price works well in normal times because there is nothing to argue about. However, when value or cost is unusually high or low, one party will deviate from the contract and hold up the other party, causing deadweight losses as parties withhold cooperation. We show that allocating asset ownership and indexing contracts can reduce the incentives to engage in hold-up. In contrast to much of the literature, the driving force in our model is payoff uncertainty, rather than noncontractible investments.

Hart, Oliver, and Luigi Zingales. 2009. “To Regulate Finance, Try the Market.” Foreign Policy.
Hart, Oliver. 2009. “Regulation and Sarbanes-Oxley.” Journal of Accounting Research 47 (2): 437-445.
Hart, Oliver, Ernst Fehr, and Christian Zehnder. 2009. “Contracts, Reference Points, and Competition - Behavioral Consequences of the Fundamental Transformation.” Journal of the European Economic Association 7 (2-3): 561-572. Abstract

In this paper we study the role of incomplete ex ante contracts for ex post trade. Previous experimental evidence indicates that a contract provides a reference point for entitlements when the terms are negotiated in a competitive market. We show that this finding no longer holds when the terms are determined in a non-competitive way. Our results imply that the presence of a “fundamental transformation” (i.e., the transition from a competitive market to a bilateral relationship) is important for a contract to become a reference point. To the best of our knowledge this behavioral aspect of the fundamental transformation has not been shown before. (JEL: C91, D03, D23)

Hart, Oliver, and Luigi Zingales. 2009. “How the Tricks that Crashed Wall Street Can Save the World.” Foreign Policy. Publisher's Version
Hart, Oliver. 2008. “Reference Points and the Theory of the Firm.” Economica 75 (299): 404-411.
Hart, Oliver, and John Moore. 2008. “Contracts as Reference Points.” Quarterly Journal of Economics CXXIII (1): 1-48. Abstract

We argue that a contract provides a reference point for a trading relationship: more precisely, for parties’ feelings of entitlement. A party’s ex post performance depends on whether he gets what he is entitled to relative to outcomes permitted by the contract. A party who is shortchanged shades on performance. A flexible contract allows parties to adjust their outcomes to uncertainty but causes ineffi- cient shading. Our analysis provides a basis for long-term contracts in the absence of noncontractible investments and elucidates why “employment” contracts, which fix wages in advance and allow the employer to choose the task, can be optimal.

Hart, Oliver, and Luigi Zingales. 2008. “Economists Have Abandoned Principle.” Wall Street Journal.
Hart, Oliver, Simeon Djankov, Caralee McLiesh, and Andrei Shleifer. 2008. “Debt Enforcement Around the World.” Journal of Political Economy 116 (6): 1105-1149. Abstract

Insolvency practitioners from 88 countries describe how debt enforce- ment will proceed against an identical hotel about to default on its debt. We use the data on time, cost, and the likely disposition of the assets (preservation as a going concern vs. piecemeal sale) to construct a measure of the efficiency of debt enforcement in each country. This measure is strongly correlated with per capita income and legal origin and predicts debt market development. Several characteristics of debt enforcement procedures, such as the structure of appeals and avail- ability of floating charge finance, influence efficiency.

Hart, Oliver, and John Moore. 2007. “Incomplete Contracts and Ownership: Some New Thoughts.” American Economic Review 97 (2): 182-186.
Hart, Oliver, and J Moore. 2005. “On the Design of Hierarchies: Coordination Versus Specialization.” Journal of Political Economy 113 (4): 675-702.
Hart, Oliver. 2001. “Norms and the Theory of the Firm.” University of Pennsylvania Law Review.
Hart, Oliver, and Lucian Bebchuck. 2001. “Takeover Bids vs. Proxy Fights in Contests for Corporate Control”. Abstract

This paper evaluates the primary mechanisms for changing management or obtaining control in publicly traded corporations with dispersed ownership. Specifically, we analyze and compare three mechanisms: (1) proxy fights (voting only); (2) takeover bids (buying shares only); and (3) a combination of proxy fights and takeover bids in which shareholders vote on acquisition offers. We first show how proxy fights unaccompanied by an acquisition offer suffer from substantial shortcomings that limit the use of such contests in practice. We then argue that combining voting with acquisition offers is superior not only to proxy fights alone but also to takeover bids alone. Finally, we show that, when acquisition offers are in the form of cash or the acquirer’s existing securities, voting shareholders can infer from the pre-vote market trading which outcome would be best in light of all the available public information. Our analysis has implications for the ongoing debates in the US over poison pills and in Europe over the new EEC directive on takeovers.

Hart, Oliver. 2001. “Financial Contracting.” Journal of Economic Literature 34 (4): 1079-1100.
Hart, Oliver. 1999. “Different Approaches to Bankruptcy.” Governance, Equity and Global Markets, Proceedings of the Annual Bank Conference on Development Economics in Europe, June 21-21, 1999. Paris: La Docmentation Francaise, 2000.
Hart, Oliver, and J Moore. 1999. “Foundations of Incomplete Contracts.” Review of Economic Studies 66 (1): 115-138.
Hart, Oliver. 1999. “Corporate Governance: Some Theory and Implications," The Economic Journal.” The Economic Journal 105: 678-689.
Hart, Oliver, and John Moore. 1998. “Cooperatives vs. Outside Ownership”.