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Abstract

This paper analyses the efficiency consequences of the introduction of contract marketing. It interprets contracts as a means for extending the use of information and increasing the efficiency of its transmission. It is shown that the present system, based on spot markets, falls short of the ideal in which the marginal value product of informational resources equals their marginal cost, marginal cost being the least technically possible. Contracting reduces this disparity and in so doing improves short and long run resource allocation, accelerates innovation, diminishes overhead costs and enhances the efficiency of obtaining information.

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