The Problem of Contract Enforcement in Economic Organization Theory

Recently, economists have directed attention to the phenomenon of organization. An important difference between the newly developed economic theories of organization, such as for example agency theory, and sociological theories of organization is the fact that economists explicitly employ an individual utility maximization assumption. In this paper, it is reasoned that this assumption, if used as in agency theory, entails logical inconsistencies if we try to explain the existence of the kind of agreements that purportedly form the basis of organiza tions. However, if the condition of uncertainty — to which agency theorists merely pay lip—service — is taken seriously, the observed inconsistencies can be reconciled. A classificatory scheme of four 'sources of obligation' is proposed for the analysis of the basis of agreements. Taking all four sources into consideration in the analysis of organizational agreements can help to avoid one-sided attention to, for example, formal, legally enforceable agreements. The findings of empirical research suggest that two basic dimensions lie at the root of the proposed classifi catory scheme. Further research is needed to check this supposition and its implications.