65 years ago, Ronald Coase (1937) asked what determines whether production will be organized in a firm or through the market, later coined the decision. This question was put center stage by Oliver Williamson (1975, 1985) who further developed Transaction Costs Economics(TCE), arguing that incomplete contracts and specific relationships overshadowed by opportunism, asymmetric information and bounded rationality, will lead vertical processes to integrate. Benjamin Klein et al. (1978) enhanced TCE with the problem: in the face of incomplete contracts, specificity and opportunistic behavior, integration can help promote ex ante investment incentives. Sanford Grossman and Oliver Hart (1986) (followed by Hart and John Moore (1990)) developed the Property Rights Theory (PRT) of the firm (See Hart, 1995). PRT formally model the hold-up problem, offered a precise definition of integration via ownership and residual control rights, and analyzed the costs and benefits of integration in a unified manner. However, PRT narrowed the focus of the make-or-buy question on one type of transaction cost - the hold up problem. This paper focuses attention on a different kind of transaction cost: haggling and friction due to ex post changes and adaptations when contracts are incomplete. The level of a transaction's complexity, which is associated with contractual incompleteness, will be the shifting parameter that determines both incentive schemes and integration decisions. This focus is motivated by a careful examination of procurement decisions in industry, and has strong empirical content since the exogenous shifter (complexity) seems easier to measure than specificity.

Reputational career concerns provide incentives for short-lived agents to work hard, but it is well known that these incentives disappear as an agent reaches retirement. This paper investigates the effects of a market for firm reputations on the life cycle incentives of firm owners to exert effort. A dynamic general equilibrium model with moral hazard and adverse selection generates two main results. First, incentives of young and old agents are quantitatively equal, implying that incentives are "ageless" with a market for reputations. Second, good reputations cannot act as effective sorting devices: in equilibrium, more able agents cannot outbid lesser ones in the market for good reputations. In addition, welfare analysis shows that social surplus can fall if clients observe trade in firm reputations.