S. Contracts, Collaboration and Interpretation

This offering meets 2 hours per week, but is worth 3 points of credit. The additional point of credit reflects the instructor's certification that the course assignments require student engagement and responsibilities beyond that found in a two hour lecture course.

Firms co-developing new pharmaceuticals or next-generation fuel injection systems or smart phones typically cannot anticipate their respective contributions to the eventual product with anything like the precision needed to form fully specified contracts. Faced with such uncertainty the parties increasingly respond by creating a rich and regular information exchange regime—contracts for innovation—that allows each to ascertain the capacity and intention of the other to meet the emerging demands of cooperation, while maintaining the right to withdraw from joint effort if collaboration fails. Where the paradigmatic 20th century contract focused on the allocation of risk between the parties, contracts for innovation govern their joint response to uncertainty. The seminar examines the design and operation this novel form of private governance in detail. More generally it explores their role as a link among nodes in the vertically disintegrated, “new” economy and shows how, in the relations it governs, trust is an outcome, not a pre-condition of collaboration.