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ECONOMY
ments in this regard? One oppor- Oliver Hart interests. The creditors – banks
tunity is for the researcher to be cannot achieve perfect monitor-
employed in the company and to • Born in 1948 in London, United King- ing of the entrepreneur in terms
get fixed salary. Then the negoti- dom of whether he makes decisions
ating power i.e. the decision rights • He graduated in mathematics at the which are in the interest of pro-
are concentrated in the company Cambridge University, United Kingdom viding return of the financial in-
– it practically completely owns • He obtained master’s degree in eco- vestment of the creditors. There-
the innovation which would even- nomics at Warwick University, United from, the loan contracts contain
tually result from the research. Kingdom two basic rights of the creditors:
Another opportunity is for the • He obtained doctoral degree in eco- (1) the right to fixed income, in-
researcher to be an independent nomics at Princeton University, United terest, which does not depend on
legal entity or natural person. In States the fluctuations of the company’s
such case the researcher is the • He has been a professor during his en- profits and (2) right to pledge
one who owns the innovation tire professional career. He taught at the (mortgage) of the company funds
and he would have significant ne- MIT and at Harvard University as a security for the loan. Such a
gotiating power in regard to the • Now he is a professor of economics at contractual arrangement practi-
company when negotiating the the Harvard University in Cambridge, cally means that when the com-
conditions under which he would USA pany is working successfully, the
provide the company to use the financiers of the company do not
innovation – through a sale of interfere in the decision making
the innovation or through a spe- of the entrepreneur on the use
cific contract on its use. The gen- of company’s resources because
eral principle is the following: the their investments are not threat-
more uncertain the innovation ened. However, when the com-
is, i.e. the risker the investments pany works with losses and the
required for its realization, the entrepreneur does not use the
more appropriate it is for the de- company’s resources efficiently,
cision rights to be located at the the creditors, by realizing the col-
party which should make these lateral of the loans, effectively
investments. This shows that the take over the company from the
decision rights are tightly related entrepreneur i.e. they take over
to the property rights i.e. to the the decision rights on the use of
right of ownership of the assets assets, for example, by selling the
which are required for perfor- pledged assets or by reconstruc-
mance of the activity defined in tion with an engagement of an-
the contract. other entrepreneur. Practically
this is the basic structure of every
The inability to draft complete loan contract wherewith the de-
contracts which define all pos- cision rights are transferred from
sible future situations enables us the entrepreneurs to the credi-
to understand the logic of some tors (in bad times for the busi-
basic financial contracts. Such ness) or from the creditors to the
are, for example, the contracts on entrepreneur (in good times for
financial loans. The entrepreneur the business).
– borrower is faced with uncer-
tainty/risk about the profits that The Nobel Prize in Economic
his business would realize in the Sciences for 2016 once again reaf-
future. However, he has effective firms the relevance of the institu-
control on the use of the compa- tional arrangements, in this case,
ny’s resources, where it depends the structures of the business
on him to what extent the inter- contracts, for the behavior of the
est of the company as a whole economic entities, and the results
would be primary compared to of their action in the economic
his private, personal, “narrow” life.
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