Governing Innovative Collaboration: A New Theory of Contract

Abstract

Herein I outline an alternative theory of contract and contract enforcement. This theory is based upon two claims, one positive and one normative. The first claim is that incomplete contracting theory fails to explain how economic actors govern production in the new economy. Theories of "pragmatic governance" do, however, capture how modern firms order their relationships. To support this first claim, evidence from collaborative contracts is presented. The second claim is that, because both the traditional contextualist and the ascendant neoformalist approaches to contract enforcement undermine this new form of contract, a new philosophy is needed. A hybrid approach, integrating both formalism and problem-solving judicial intervention, provides such an alternative.

Keywords: contract theory, economic organization, theory of the firm, incomplete contracts, relational contracts, private ordering, contract interpretation, pragmatism, formalism, contextualism, problem-solving court, alternative dispute resolution

JEL Classification: K12, K20, K41, D23, D81, D83, L14, L23, L22, O12