The following thesis address the issues contracting parties face when their contractual relationship will have to endure the risk, and economic burdens followed by unexpected circumstances. Unexpected circumstances represent the situation of which an occurrence outside the influence of the contracting parties will result in an economic burden. Using economical and law theory both separately and integrated I seek to explore how the parties could plan their contractual relations in order to allocate the risk and minimize the burdens of the unexpected circumstances. First of all the mission of the parties is to minimize the cost of unexpected circumstances and allocate the risk optimal. The costs can be reduced by two means. First the risk can be allocated to the optimal risk bearer and secondly the parties can seek to minimize costs by a given behaviour. This is a classical principle-agent problem and with it follows agent costs. Signalling as a solution for adverse selection seems like a plausible mechanism, but in regards to moral hazard it is another story. The analysis shows that the written contract governed only by classical contract law and incentive mechanisms has it short comings. The law seems to emphasize justice over economical reason when it comes to the optimal risk bearer. The risk allocation as an incentive mechanism leaves the parties incentives incoherent. When the complexity of the contractual relationship increases, it is expensive to solve the allocation of risk and economic burdens by these means. Therefore relational contract theory is introduced as a complementary theory to address these issues. The strength of this theory is that the sanction system is based on reputation. This is then facilitated through a norm structure providing the rules of good contractual behaviour, which mainly consist of trust and loyalty. Thereby is it not necessary to make it an explicit part of the contract and the governing mechanisms are therefore implicit. This help to understand why disputing parties, when faced with dire economic circumstances due to extraordinary events, have the will to negotiate. The parties realizes that there can be economic gain from the continuance of the relation even thought a loss must be born in the short run. The thesis also emphasizes that bringing the parties to the negotiation table often is the efficient solution. It is then possible to rely on the parties’ loyalty and trust contained in the governing norms in order to reach the efficient solution. This will further nurture the good relation and provide a positive circle of which the relationship will gain strength over time. It is important to emphasize that this make neither the legal system, nor the explicit contract redundant. These are important as they function as the foundation and frame of the contractual relation. The explicit contract should be stipulated in a way that the parties have a negotiation clause that will provide the trigger for the actual negotiations. Thereby the theories will complement each other when the complexity of the contract relation increases.
|Educations||MSc in Commercial Law, (Graduate Programme) Final Thesis|
|Number of pages||102|