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Artigot i Golobardes, Mireia; Gómez Pomar, Fernando --- "Long-term Contracts in the Law and Economics Literature" [2011] ELECD 133; in De Geest, Gerrit (ed), "Contract Law and Economics" (Edward Elgar Publishing, 2011)

Book Title: Contract Law and Economics

Editor(s): De Geest, Gerrit

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847206008

Section: Chapter 16

Section Title: Long-term Contracts in the Law and Economics Literature

Author(s): Artigot i Golobardes, Mireia; Gómez Pomar, Fernando

Number of pages: 46

Extract:

16 Long-term contracts in the law and
economics literature
Mireia Artigot i Golobardes and
Fernando Gómez Pomar


1. Introduction
Contracts increase the likelihood of cooperation in economic and social
interaction by making binding commitments credible and less costly. This
is also true of cooperation over extended periods of time, even in the pres-
ence of other modes of inducing and stabilizing cooperation in protracted
interactions. The economic literature1 dealing with contract issues and,
more specifically, on long-term relationships has differentiated between
long-term contracts and contracts that extend over a long period of time,
often called relational contracts.2 Relationships that last a long time may
be governed by a long contract or by many short contracts, because they
do not necessarily require a certain type of contract, a given contract
length, or even a formal contract at all. While all long-term contracts are
contracts that tend to last a long time and share certain common charac-
teristics, not all contractual relationships that involve significant duration
are drafted as long-term contracts.
From a law and economics perspective, three major dimensions of long-
term contracts are to be highlighted:3 the existence of specific investments,
their inherent ­ added ­ incompleteness, and the complexities of the issues
arising from breach and termination.
Specific investments are investments, the value of which depends on
whether they are used by parties within the contractual relationship or
outside it.4 A pure specific investment has value for the contract between
the parties ...