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Contextual Contracts: On a Context-sensitive Approach to Contract Theory

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  • Prateek Goorha

Abstract

I propose a method for introducing ‘context’ within the contractual environment based on a simple and intuitive application of control theory. The approach permits looking at several interesting practical features of contracts, be they incomplete, complete or smart, within a single framework. I define a contextual environment with the help of an interaction between three distinct spaces: a market-based contractual space framed within a formal institutional space and an even larger cultural space. Each space is characterized by a governing law built on a selection of control mechanisms that differ in their approach as well as their reliance on information generated from feedback mechanisms. I suggest how these governing laws tie the contextual spaces together and present some ideas on how they evolve through their interactions with other spaces. JEL: D20, D86, P50, Z10

Suggested Citation

  • Prateek Goorha, 2018. "Contextual Contracts: On a Context-sensitive Approach to Contract Theory," Journal of Interdisciplinary Economics, , vol. 30(2), pages 191-209, July.
    • Handle: RePEc:sae:jinter:v:30:y:2018:i:2:p:191-209
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    References listed on IDEAS

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    1. Jean Tirole, 2009. "Cognition and Incomplete Contracts," American Economic Review, American Economic Association, vol. 99(1), pages 265-294, March.
    2. Peter J. Boettke & Christopher J. Coyne & Peter T. Leeson, 2015. "Institutional stickiness and the New Development Economics," Chapters, in: Laura E. Grube & Virgil Henry Storr (ed.), Culture and Economic Action, chapter 6, pages 123-146, Edward Elgar Publishing.
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    6. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September.
    7. Alberto Alesina & Paola Giuliano, 2015. "Culture and Institutions," Journal of Economic Literature, American Economic Association, vol. 53(4), pages 898-944, December.
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    More about this item

    Keywords

    Contract theory; institutions; control process theory; culture; context;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • P50 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - General
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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