A Theory Of Self-Enforcing Agreements


A self-coercive agreement between two parties will remain in force only as long as everyone thinks it will be better in pursuing the agreement than if it were to end it. It is up to the parties to decide whether or not an offence exists. If one party violates the terms and conditions, the other party is the only party to have the contract terminated after discovering the breach. No third party intervenes to determine whether an offence has occurred or to estimate the harm that can be attributed to such an offence. No third party decides whether an offence is “intentional” or “accidental.” A party to a self-forced agreement calculates whether the benefit of the breach of the agreement is greater or less than the loss of future net benefits resulting from the detection of the infringement and the termination of the contract by the other party. All contracts are incomplete. However, incomplete contracts differ in several key dimensions. Many contracts are incomplete because the parties refuse to condition the performance of future states that they cannot meet or verify in court. In these cases, incompleteness is exogenous for the contract. However, other agreements appear to be “deliberately” incomplete, as the parties do not condition the performance of the available and verifiable measures that could be fixed in the contract at a relatively low cost. The incompleteness of these agreements is therefore endogenous, indicating that the parties had other reasons for not specifying the conditions in question. One assumption is that these agreements can impose themselves.

But most recently negotiated cases do not seem to self-impose in the traditional sense. On the contrary, most isolated transactions are between foreigners who trade with the length of weapons. However, recent work in the experimental economy indicates that the scope of self-erected contracts may be much broader than has been understood conventionally. One of the solid results of these experiments is that a significant portion of individuals behave as if reciprocity were an important motivation (including in isolated interactions with strangers), while a comparable fraction reacts as if it were motivated exclusively by one`s own self-interest. These experiments are the foundation of a theory that deliberately incomplete contracts, based on self-enforcement through mutual equity, are more effective than the alternative to more comprehensive and legally binding agreements. The power of mutual equity as a method of self-application explains (and justifies) the resilience of the open common law doctrine in the face of a contemporary academic consensus in favour of extending the scope of legislation. The traditional doctrine of contract law seems to follow this distinction. One of the fundamental principles of the right to contact is the requirement for clarity. An agreement is not applied as a contract if it is uncertain and materially undetermined.

However, it is generally accepted that the doctrine of indeterminacy is largely ignored by today`s courts. However, a review of the current case law on indeterminate contracts reveals some striking facts. In dozens of cases literally, U.S. courts undeterminedly dismiss prosecutions for treaty violations, often without giving discharge to the disappointed promise.

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