Extortion and ways to prevent it
Contract types and transaction characteristics that affect the choice between them
Economic exchange in society is not limited to the conclusion of a classic contract in the market of cash. Back in the 30's. The famous American lawyer, the compiler of the Uniform Commercial and Commercial Code of the USA (which regulates the sale of goods in America today) K. Llewellyn drew attention to the fact that a classical legal contract is in many cases not suitable for explaining an economic organization, and sometimes it can even complicate the analysis. His idea in 1963 was developed by American jurist S. Macaulay.
All the variety of contracts is presented in Fig. 4.1 in the form of a spectrum, in the left part of which there are purely market transactions in the market of the available goods. In conventional contracts, the parties, as a rule, can reduce the required performance to clearly specified obligations of the parties.
Fig. 4.1. Types of contracts that make up economic exchange in a society
As you move to the right in contracts, the proportion of relative elements increases, i.e. implicit, clearly unconstrained, implicit agreements that are not enshrined in the legal document. These arrangements can not be protected in court, the main enforcement mechanism for fulfilling their obligations is the internal coercion of each of the parties ( self-enforcement ). As an example of a legal contract that includes the maximum number of relative elements, one can cite the registration of a marriage that is legally registered, but this contract presupposes implicit agreements between spouses that can not be protected in court. Then the scope of the legal contract that can be protected by the judicial system ends and the zone of contractual contracting begins.
The contract is relative to the extent to which the parties can not reduce the important terms of the arrangement to clear obligations ... Long-term contracts are probably more consistent with this view. Relational contracts create unique relationships in which the parties are interdependent, and the unknown circumstances or complexity of the response required by the parties to these circumstances may prevent a clear specification of their mutual obligations. An example of a purely relational contract can be friendship. You expect assistance from friends in emergency situations, but these expectations can only be based on the moral obligations assumed by the parties, rather than on the obligations protected by the legal system. Relational contracts involve strong personal ties, they are long-term and foresee the possibility of conflicts as a normal component of interaction between the parties.
Investigating contracts concluded in business, American jurist J. McNeil in 1974 proposed a three-part classification of contracts:
This classification of contracts was used by Williamson in his theory of economic organization. But if McNeil, referring to the relative contracts, meant the relationship between the parties in the market, then Williamson understood the contract within the company between its divisions.
What determines the choice between these types of contracts, what characteristics of the transaction affect it?
• The frequency of transactions. Transactions can vary in their degree of regularity and duration, they can be single, sporadic and regular (or continuous). If the transaction is one-time and its execution takes a short time, the relationship will be built on an impersonal basis, possibly using standard, standard contracts, and disputes will be decided in court. An example is the purchase of an apartment. In this case, the parties do not need to establish a personal relationship. Relations are formal and terminate immediately after the transaction. However, if the deal between partners is repeated on a regular basis or if its implementation requires that the relations between the parties be closer, then these relations between the parties become less formal. For example, in hiring contracts, most disputes between firms and their employees are decided not in court, but in the process of personal communication. In this case, the appropriate form of the contract saves costs associated with the use of expensive formal coercive mechanisms.
• Uncertainty and complexity of the transaction. If the goods that are the subject of the transaction are simple enough, you can sign a contract clearly defining the responsibilities of the parties. In it, you can record how much goods will be delivered at a certain time according to the agreed price between the parties, for example, 100 tons of metal at a fixed price with delivery in a month. This contract is quite simple, and in case of breach of obligations of one of the parties to the contract, it is easy to protect in court, since the absence of uncertainty and the simple nature of the subject matter of the transaction allow a third party (in this case an arbitration judge) to determine the violation and resolve the dispute.
Suppose now, you have a house with a garden. You leave and want, that during your absence, a specially hired gardener with whom you sign a contract cares for the garden. Uncertainty will manifest itself in this contract in the fact that it is difficult to determine the weather conditions before signing it, it is impossible to envisage the invasion of silkworm caterpillars, the destruction of plants by powdery mildew. The difficulty will be manifested in the fact that it is necessary to provide for each random circumstance what the gardener hired by you should do, when it should spray the plants, how many they need to be watered, whether it is necessary to destroy the diseased plant in order to prevent the spread of the disease, etc.
The answer to this combination of uncertainty and complexity will be the definition of the required performance in very general terms. Ethical standards of behavior of agents (in our example of a gardener) is an example of how obligations in relative contracts are formulated. Relational contracts also require more "creative" quotes. control mechanisms than conventional contracts.
• Resource specificity is the factor that has the greatest influence on the choice of contract form, especially if it is combined with one or more of the factors listed above. Therefore, we will consider its impact on the choice of contract form in more detail.
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