In economics, contingent, time- and context-bound theories may yield more useful explanations and predictions than timeless and universal generalizations based on ungrounded assumptions.

Economic theory deals with two concepts, Value and Economy. Abstract reasoning regarding these concepts rests ultimately on mathematical concepts of quantity, time and energy. The three are inseparable, for quantity and time are dimensions of energy. The quantity relationships of energy, usually termed "statics," turn on the problem of the relation of the parts to the whole, while the time relationships, usually termed "dynamics," are the relations of a process that connects past, present and future.

Contingency Theory is not a theory at all, in the conventional sense of theory as a well-developed set of interrelated propositions. It is more an orienting strategy or metatheory, suggesting ways in which a phenomenon ought to be conceptualized or as approach to the phenomenon ought to be explained. Drawn primarily from large-scale empirical studies, contingency theory relies on a few assumptions that have been explicitly stated, and these guide contingency research.

Paul Lawrence and Jay Lorsch (1967), who coined the label “contingency theory,” argue that different environments place differing requirements on organizations: specifically, environments characterized by uncertainty and rapid rates of change in market conditions or technologies present different challenges—both constraints and opportunities—to organizations than do placid and stable environments

This article [entitled A framework for the comparative analysis of organizations], was one of three independent statements in 1967 of what came to be called "contingency theory." It held that the structure of an organization depends upon (is ‘contingent’ upon) the kind of task performed, rather than upon some universal principles that apply to all organizations. The notion was in the wind at the time.

We look upon economic theory as a sequence of conceptual models that seek to express in simplified form different aspects of an always more complicated reality.

There is little doubt that the observation that quality may depend on price (productivity on wages; default probability on interest rates) has provided a rich mine for economic theorists: A simple modification of the basic assumptions results in a profound alteration of many of the basic conclusions of the standard paradigm. The Law of Supply and Demand has been repealed. The Law of the Single Price has been repealed. The Fundamental Theorem of Welfare Economics has been shown not to be valid.
More than that, the theories that we describe here provide the basis of progress toward a unification of macroeconomics and microeconomics. They pro vide an explanation of unemployment and credit rationing, derived from basic microeconomic principles. It is a theory in which the extensive idleness that periodically confronts society's resources, human and capital, is seen as but the most obvious example of market failures that prevasively and persistently distort the allocation of resources.

In fact, is is not a mere empirical accident that not all the contingent markets needed for efficiency exist but a necessary fact with deep implications for the workings and structure of economic institutions. Roughly speaking, information about particular events, even after they have occurred, is not spread evenly throughout the population. Two people cannot enter into a contract contingent on the occurrence of a certain event or state if only one of them in fact will know that the event has occurred. A particular example of this is sometimes known as “moral hazard” in the insurance and economic literature. The very existence of insurance will change individual behavior in the direction of less care in avoiding risks.

In the first place, economic theory provides a comparatively detailed specification of the demand relationships for individual consumers' goods, but is by no means so specific about the system into which these relationships fit. It would be possible to close the system in very many ways, and the precise way selected would influence the regression estimates in a model involving simultaneous equations.

Contingency theory is guided by the general orienting hypothesis that organizations whose internal features best match the demands of their environments will achieve the best adaptation.

While economic theory in general may be defined as the theory of how an economic condition or an economic development is determined within an institutional framework, the deals with how to judge whether one condition can be said to be better in some way than another and whether it is possible, by altering the institutional framework, to achieve a better condition than the present one.

While economic theory in general may be defined as the theory of how an economic condition or an economic development is determined within an institutional framework, the deals with how to judge whether one condition can be said to be better in some way than another and whether it is possible, by altering the institutional framework, to achieve a better condition than the present one.

Contingency theories dominate scholarly studies of organization behavior, design, performance, planning and management strategy. While they vary widely in subject matter, they have the common proposition that an organizational outcome is the consequency of a "fit" or match between two or more factors. "Fit" is the key concept in this proposition, and the core problem common to contingency theories is not defining this term clearly. This paper examines three ways to define and test this concept of fit: Selection, Interaction, and Systems approaches. A critical discussion of these three approaches will clarify much of the current confusion in the literature on contingency theories, and suggest ways that future theorizing and research can become more systematic and constructive.

Some scholars have argued strenuously against the idea that the organization is determined by its situation and have instead asserted that managers have free choice and are thereby to be held morally accountable (Bourgeois 1984; Whittington 1989). Contingency theory appears to some critics to be a managerially convenient ideology that justifies as inevitable organizational characteristics that are not really inevitable, because they are not really required for organizational effectiveness, and that injure the interests of employees *Schreyogg, 1980). Thus contingency theory is opposed by free choice.