Abstract
The first purpose of this paper is to design a model of governance structure, called the contingent governance, which can control the free-riding problem in teams in the second-best manner. The second is to show, by a new method of comparative static analysis, that the effectiveness of the contingent governance may be enhanced by complementary institutional arrangements of the imperfect labor market and bank-centered financial system. The paper discusses the implications of such institutional complementarity for the dynamic change of the Japanese main bank system and financial system design of transitional economies. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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