Law Commons^™

Braiding: The Interaction Of Formal And Informal Contracting In Theory, Practice, And Doctrine, Ronald J. Gilson, Charles F. Sabel, Robert E. Scott

Faculty Scholarship

This Article studies the relationship between formal and informal contract enforcement. The theoretical literature treats the two strategies as separate phenomena. By contrast, a rich experimental literature considers whether the introduction of formal contracting and state enforcement "crowds out" the operation of informal contracting. Both literatures focus too narrowly on how formal contracts create incentives for parties to perfom substantive actions, while assuming that informal enforcement depends on preexisting levels of trust. As a result, current scholarship misses the relationship between formal and informal contract mechanisms that characterizes contemporary contracting in practice. Parties respond to rising uncertainty by writing contracts …