Handshake contracts shift enforcement costs onto reputation bonds.

Evidence

It is not clear, however, a priori that these costs are necessarily higher than those incurred in the formation of an extralegal contract consummated with a handshake. Because the ability of the promisee to enforce an extralegal contract depends on the posting of a reputation bond — Lisa Bernestein, Opting out of the Legal System, 126

Categorization

• DEFINE: Introduces the ‘reputation bond’ concept central to extralegal contracting.
• XREF: connects to: A reputation bond equals forgone future profits from breach — Lisa Bernestein, Opting out of the Legal System, 168; Reputation can substitute for legal enforceability in evaluating contracts. — Lisa Bernestein, Opting out of the Legal System, 213; Reputation-building is a deliberate investment of foregone gains (+4 more)

Related

• Handshake-deal transaction costs are not obviously lower than formal contract costs. (similarity 0.89)
• A reputation bond equals forgone future profits from breach (similarity 0.88)
• Cheap legal contracts still depend on extralegal reputation bonds (similarity 0.88)
• Reputation can substitute for legal enforceability in evaluating contracts. (similarity 0.84)
• Trust matters everywhere, but cheap reputation bonds enable fully private law (similarity 0.81)
• Extralegal contracting needs reputational information plus cheap formalities to signal formation. (similarity 0.81)
• Tammany contracts were favors binding loyalty, not formal agreements (similarity 0.81)
• Extralegal contracts need cheap formalities to signal agreements to the group. (similarity 0.80)
• Open-outcry exchange trust depends on exclusion and threat of refusal, not enforceable contracts (similarity 0.79)
• Private legal systems can rival state law when reputation functions as enforcement. (similarity 0.78)

Broader Connections

• A reputation bond equals forgone future profits from breach #expands (0.85) — Lisa Bernestein, Opting out of the Legal System, 168
• The threat of ending an exchange is what enforces trustworthiness #corroborates (0.80)
• A continuing relationship functions as a bond deterring dishonest trading #corroborates (0.80)
• Reputation-building is a deliberate investment of foregone gains #expands (0.78)
• Trust matters everywhere, but cheap reputation bonds enable fully private law #corroborates (0.75) — Lisa Bernestein, Opting out of the Legal System, 167
• Reputation can substitute for legal enforceability in evaluating contracts. #qualifies (0.70) — Lisa Bernestein, Opting out of the Legal System, 213