Oliver Hart and his co-authors argue that the hold-up problem may be mitigated by choosing a suitable ownership structure ex-ante (according to the incomplete contracting paradigm, more complex contractual arrangements are ruled out).
In particular, some authors such as Maskin and Tirole (1999) argue that rational parties should be able to solve the hold-up problem with complex contracts, while Hart and Moore (1999) point out that these contractual solutions do not work if renegotiation cannot be ruled out.
[14] The property rights approach based on incomplete contracting has been criticized by Williamson (2000) because it is focused on ex-ante investment incentives, while it neglects ex-post inefficiencies.
[15] It has been pointed out by Schmitz (2006) that the property rights approach can be extended to the case of asymmetric information, which may explain ex-post inefficiencies.
[19] The theory of incomplete contracts has been successfully applied in various contexts, including privatization,[20][21] international trade,[22][23] management of research & development,[24][25] allocation of formal and real authority,[26] advocacy,[27] and many others.
[28] In 1986, Grossman and Hart (1986) used incomplete contract theory in their seminal paper on the costs and benefits of vertical integration to answer the question "What is a firm and what determines its boundaries?".
The Grossman-Hart theory of property rights is the first to explain[citation needed] in a straightforward manner why markets are so important in the context of organizational choice.
Grossman and Hart claim that the essence of the firm lies in the decision-making power conferred by the ownership of its assets.
In a world of incomplete contracts, decision-making power plays a key role in determining the incentives of owners.
[32] Incomplete contractual/property rights approach gives rise to theories of ownership and vertical integration, and it also directly addresses the question of what constitutes a firm.
Conditions of ownership by the seller, implies the right to sell these goods to the buyer:[37] ——Criminal or tortious contracts[39] ——Contracts to promote corruption in public office[40] ——Contracts intended to avoid paying taxes[41] ——Contracts to prevent or delay the administration of justice[42] The effect of a breach of a statutory provision on the validity and enforceability of a contract depends on the wording of the regulation itself.