The Relational Economics of Commercial Contract

For almost half a century, the mainstream law-and-economics movement in contract law has zealously protected the parsimony – or simplicity – of economic analysis. The faith in ever-increasing formality is captured both by stubbornly spare assumptions about human behavior and tightly controlled econometric modeling. With few exceptions, the trend in most mainstream contract law scholarship – where the law-and-economic approach is dominant – has been toward excluding, not including, any variable which would capture the realities of actual contracting behavior. This trend has fueled the rise of neo-formalism in both contract theory and doctrine to the exclusion of other accounts. At the same time, however, economic empiricists in other disciplines have been capitalizing on insights from sociology – insights almost as old as the law-and-economics movement itself – showing not only that, but also how, commercial actors in contemporary transactions rely on cooperative social behaviors common in everyday contracting. These behaviors, called relational norms, were originally identified by law-and-sociology professor Ian MacNeil as part of what is now called relational contract theory. Since the early 1990’s, economics scholars working mostly in the fields of marketing and strategic management have included relational norms as key variables in transaction cost analysis research. Strangely, though this work has clear implications for contract law and theory, this work has yet to be discussed in contract law literature. This article breaks new ground by introducing that work in contract law scholarship. The article shows how, contrary to received wisdom in law-and-economics, including relational behaviors in transaction cost research can improve, not detract from, the predictive power of economic analysis