Handshake-deal transaction costs are not obviously lower than formal contract costs.
Evidence
One line of analysis used to explain market transactors’ choice between legally enforceable contracts and extralegal contracts focuses on the transaction costs of negotiating and drafting legally enforceable agreements. 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
- XREF: Connects to the reader’s own work on infrastructure and informal systems — the reputation bond functions as social infrastructure in the same way root grafts function as botanical infrastructure. — connects to: Contractual commitments shift negotiation costs rather than truly binding anyone — Thomas C. Schelling, The Strategy of Conflict, 68; Formal agreements can strengthen tacit coordination norms. — Thomas C. Schelling, The Strategy of Conflict, 605; Private-judge trading systems succeed only when enforcement costs stay low — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 15 (+1 more)
Related
- Handshake contracts shift enforcement costs onto reputation bonds. (similarity 0.89)
- Cheap legal contracts still depend on extralegal reputation bonds (similarity 0.83)
- Extralegal contracts need cheap formalities to signal agreements to the group. (similarity 0.81)
- Extralegal contracting needs reputational information plus cheap formalities to signal formation. (similarity 0.80)
- Tammany contracts were favors binding loyalty, not formal agreements (similarity 0.79)
- Extralegal contracting costs fall when such contracts dominate a market. (similarity 0.78)
Broader Connections
- Private-judge trading systems succeed only when enforcement costs stay low
#expands(0.75) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 15 - Contractual commitments shift negotiation costs rather than truly binding anyone
#qualifies(0.72) — Thomas C. Schelling, The Strategy of Conflict, 68 - Formal agreements can strengthen tacit coordination norms.
#qualifies(0.72) — Thomas C. Schelling, The Strategy of Conflict, 605