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The Nature of the Firm:a Fulfilling Process of a Set of Incomplete Contracts of Factors' Using Rights Transactions

Xie Deren (The school of economics & management,tsinghua university)  
This paper discusses the nature of the firm. Based on the papers on the contractual theory of firm, and further analysis, the paper show us that the nature of the firm is a fulfilling process of a set of incomplete contracts of factors' using rights transactions entered into by factors' owners in the market. The process includes input of factors, the exercising of factors' using rights (residual rights of control as its core),the allocation of the value-added of factors(the exercising of claim to residue as its core)and the creation and use of firm's organizational capital and organizational assets,the transaction function and production function are highly integrated in the process. So, residual rights of control and claim to residue constitute the core content of the set of contracts. As a fulfilling process of a set of incomplete contracts of factors' using rights transactions, the firm and the markets(such as factors markets, assets and service markets, etc.) can not be viewed as complete mutual oppositions, but as the basis for one anther, and they promote one another.
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