The Coevolution of Transnational Corporations and Institutions

While economic theories of the firm have traditionally focused on the ownership of assets, the increasing use of contractual partnerships is beginning to challenge our conception of the firm by emphasizing its coordinating role. In structuring their contracts, as well as in managing the relationships governed by the contracts, firms try to mitigate uncertainties that could destroy the value-adding potential of such transactions. These uncertainties may be specific to the transaction partner, but they might also arise from the institutional context of the contracting parties, particularly in the case of transactions that cross borders. The coevolutionary process whereby firms both adjust to and shape the institutional constraints facing them results in new hybrid forms of governance, which contribute to the body of private transnational law. By studying how firms mitigate the uncertainties in their contractual relationships, empirical research can yield new insights about the emergence and impact of private law.