A simple game-theoretical model of "reengineering" shows that the contract-theoretical principles of incentive compatible corporate governance also apply to the dynamic processes of corporate restructuring. These principles help to explain why reengineering projects fail and to design such projects more successfully. In addition, they illustrate how welfare state provisions interfere with the mechanisms of corporate governance and thus allow for predictions about firms' strategies for adaptation. Extensions of the model will explain why "globalization" not only causes pressure on firms within a given institutional framework, but also urges governments to change national institutional frameworks.
