The Prevention And Control Of Contract Risk Background In The Open Market

In18thcentury, the trend of philosophy of liberalism contributed to the beginningof autonomy which was hold in esteem by classical contract. With the20thcenturyarriving,“autonomy”,“consideration” and “privity of contract” worshiped byclassical contract confront unprecedented challenges because of the trend of thoughtof Realism, so scholars have to introspect contracts and the function of contract law.The interest contained in Contract makes “original contract” hard to be fulfilledspontaneously and efficiently，which requires the rules governing aiming at themaxim benefits. Based on this background，the mission of contract law is bound tomaximize the control of the contract risk, thereby to achieve the best contract effect.The purpose of this thesis is to make contract theory get institutional analyzed, so asto find out the key of contract risk prevention.The traditional contract theory to our understanding is concerned more about thecontract and its theories on moral justification, and the way of presentation of theresearch presents is of much abstract characteristic. In the meantime, we conclude thatthere are certain similarities between classical contract and the liberal economics. Theconclusion inspires us that the application of the economics analysis approach tocontract law is more appropriate. New institutional economics, especially,about theanalysis of transaction cost, will do good to the prevention and control of contractrisk.The classical contract theory considers the contract subject to be with a perfectreason, and ignore the friction in trade-the existence of transaction cost. Theconclusion of the institution of the utopian vision is clearly is far from reality. Basedon the simple revision of the change of contract theory, it’s for sure that moderncontract theory is the relational contract theory which is dominated by boundedrationality and multi-faceted social people. The real transaction to the market as thecarrier is the theoretical source of contract theory and the most vivid forms of contract.Therefore, contract risk control problem research should return to the transaction andmarket.The origin of contract risk is from contractual incompleteness which is given bythe limited rationality and information asymmetry, but there are no possibility andnecessary to consummate contract status. The more logical and effective solution is tofocus on the real transactions. The author considers that the criteria of the contract binding, the length of contract time, externality, opportunistic behavior in transactionsand monopoly result in contract cost increase inefficiently. Identification of thecontract binding is related to the risk and efficiency of transaction. Because the basisand premise of implementation of subsequent transactions take promises of the partiesfor premise. The Author agrees that a subjective and objective way to indentify thecontract binding is more scientific; It’s obvious that contract duration affects contractrisk, however, that isn’t enough to deny the value and meaning of existence oflong-term contract. The long-term contract is a kind of more stable cooperation modeand the parties to the transaction repeatedly game to get the summary of commonpractice, and it helps the parties to adopt mutually beneficial behavior and reduce thepossibility of opportunistic behavior in the one-off game, while providing themotivation for the open of the trade market, in order to achieve the purpose of theeffective information about contract, trading and market interaction cycle; The newinstitutional economics is convinced that opportunism lies in the root of transactioncost, and it forces the parties to increase the defense costs of the transaction which isobviously of no good for the residual value. We can reduce opportunistic behaviorthrough the termination of trading relationships or punishment, but certain kind ofremedial measures for the transaction itself is still meaningless. The opportunisticbehavior is due to asymmetric information, however, it doesn’t mean that publicpower should be more patriarchal to get involved in, and the mandatory disclosure ofinformation should be conditional. Because the collection of information is part of thetransaction costs, if force trading parties to public the information will have a negativeimpact on the traders’ enthusiasm and market’s prosperity. Contract law shouldensure that an appropriate game process between the the parties—proceduralrationality. Similarly, the monopoly is also faced with the same problem-how to keepthe balance between the public and symmetry of information is the key to making outthe problem.In addition, although trading parties should retain the trust on contract,this kind of trust must be restricted by situations and condition. Only by flexiblymastering the trust of situations, it can not only reduce transaction costs but alsoensure transaction security. And contract external is about whether efficient breach isrational or not, the thesis holds a positive attitude on it. That doesn’t contrast with thegood faith, but allows the parties to trade-off between the interests and penalties, andthen make a choice. Rational institution model is based on the minimum cost toprotect the security of transactions. Unfortunately, in most of the time the two are always in opposite. So, to find the equilibrium point between two is crucial forprevention and control of contract risk.Transaction costs is the core of the new institutional economics. Therefore, weshould draw lesson from the advantage achievements of other disciplines. It’s morelikely to find the code of contract risk by thorough understanding of transaction. Thethesis also demonstrates this kind of research approach.