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Empirical
expeditions on the nature of the contracts is not a new thing. Some important
studies and various scholars have observed and come out with distinctive roots of
empirical explorations on contracting relating to Steward Macaulay’s seminal
work in 1963 (Eigen, 2012).The
theory “Relational contract” was originally developed by scholars, Ian Roderick MacNeil (1980) and Steward Macaulay (1963) in United States. According to MacNeil
(1985), he mainly focuses on exchange relationships as a behavioral aspect of
contracting, he avoids treating any governance models of exchanges, where most
of his work is related to the social environment and behavioral norms. On the other hand, Macaulay defined it simply
occur based on the trust between parties (1963). It may be said that empirics are on their way of
perceiving the importance of this concept, which has had a significantly longer
persuasion in scholarship in law and social sciences (Eigen, 2012).

This
theory was created as a result of the arguments which was brought by some 90’s
scholars criticizing the view of the theories consent belongs at the heart of
traditional and classical contract laws (Barnett,1992; Campbell,2004; Williamson,2007). Famously Charles Fried (1981), Grant Gilmore (1974), & Ian MacNeil (1985) theorized
on those contracts and pointed out that the shortcoming born due to the
inconsistency between, how a contract assumed to be experienced by the law and
how it actually be experienced. Perhaps it was the earlier work by Steward
Macaulay (1963) then Ian MacNeil (1980) that
evaluated the periphery under which parties expected to engage in contracts
between businesses that barely paved the way for these theoretical reconciliations
(Eigen, 2012).

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Over time, contract law might not have evolved very much away from
economic and business studies. The term “contract” as a concept has been
developed historically with an ancient mean of managing and regulating dyadic
exchanges (Eigen, 2012).Contracts are manifestations of legally enforceable
agreements that can be found in all kind of business alliances, strategic
partnerships or collaborations and it creates an intention to be legally
bounded to fulfill a commitment. (Heide and
John, 1990; Roxenhall and Ghauri, 2004; Baker, Gibbons and Murphy, 2008).
(Barnett,1992; Mouzas
& Blois,2008). To have a better understanding on the complexity of
disciplinary approaches and questions framed on contracts raised in modern
empirical explorations many scholars, courts and legislators in various fields
have bring out a more simplified definition on contracts, as the product of
bilaterally exchanged commitments freely negotiated and agreed upon by the
parties (Macaulay 1963; McIntyre 1994).

The nature, attributes and forms of contracts has been
investigated by scholars using various approaches under different disciplines
and emphasis, (Argyres & Mayer,2007; Blois,
2002; Harrison, 2004; Schwartz & Scott, 2003) and
have provided a view through different angles which to study exchange
relationships. Within a corporate world of exchange relationships, which
centralizing to some dominant research works (e.g. Lambe, Spekman & Hunt,
2000; MacNeil,1980;1985; Macaulay,1963; Williamson,1981;2007), understanding the
forms and nature of the contractual management is an important issue. Such
understanding allows individuals to examine how contractual decisions are been
achieved and expressed under different modes of governance that function
between interrelated companies in business network (Mouzas & Blois, 2008).

The experience of independent contracting has been, anticipated
and the comparative reconfiguration from long term contracting to common ownership
is compatible with the basic transaction cost minimizing argument by Williamson
(1981). According to him contracts basically fall into two distinct categories,
legal and relational contracts. Even though exchange parties are legally
bounded on a particular transaction, it will generate a mode of relational
governance in the long term. The common view on legal rules provide more
elastic concept of contract as framework, where the framework never precisely
denotes an exact outlook of the relational influences on exchanges, but afford
a rough idea around which such relations can be vary (Williamson, 2007). However, some economists proposed that “there is another
possible remedy when contracts are imperfect: leave the governance structure
alone, but move to “relational contracting” (Gibbons,2005, p.236).

A relational contract is a relational or a self-enforcing
agreement so rooted within parties in particular circumstances while it
contains some elements which cannot be enforced by a third party, such as court
and contains absolute elements where third parties are unable to verify whether
contractual obligations have been met (Gibbons,2005; Mouzas & Blois,2008).
Indeed. relational contracts are frequently based upon unwritten codes and
conducts of informal agreements, for economists it can be create indefinite
situations that makes a doubt on relational elements which referred to the
interpretation and the establishment of contracts (Mouzas & Blois, 2008).So on one hand benefits of the relational contract is that they
allow “the parties to utilize their detailed knowledge of their specific
situation and to adapt to new information as it becomes available” (Gibbons,
2005, p.236) but, on the other hand for the very same reasons, they cannot be
enforced by a third party (Mouzas & Blois, 2008).Moreover relational
contracts within and between firms help to evade difficulties in formal
contracting mainly difficulties occur due to the enforcement of a third party
such as court (Baker, Gibbons, & Murphy, 2002) and by maintaining a
long term orientation and long term relational contracts ,it helps firms to
perform well achieving mutual gains in voluntary exchanges (Buchanan, 2001) while mitigating hold up problems
between parties (Kukharskyy & Pflüger, 2010).

Much of the work related to ‘relational
contracts’ was based on the studies of Ian Macneil where he claims there is a
separate ‘relational’ category of contracts (Campbell,2004). What he refers to
as “relational” form of contracting, involves arbitration, collective
bargaining and other types of contractual market exchanges that are becoming
more important and need to be recognized (Williamson, 1981). Macneil presents nothing
less than a “holistic” “social
theory” of human exchange-with particular emphasis on the human activity of
“projecting exchange into the future,”
which he calls “contract.”. He develops an elaborate descriptive set of
“norms” that should be undertaken, to if contractual exchange to be exist and
success. Most importantly, however, the convention theory of contract is an unabashed
relational theory of contract (Barnet,1992). According to Barnett’s
(1992) original presentation of a consent theory: “Any concept of
individual rights must assume a social context” and he proposed that certain
rights are important, to enable the existence of a relational order of actions
that allow persons to solve the various problems of knowledge and interest. And
accorded with the second feature of Macneil’s theory that merits investigation is
his consistent assertion that standing behind all relational exchange or
contracts is a socially enforced system of property (Barnet,1992). In
relational exchange, the relationship is a critical governance mechanism and, a
key determinant that lead a relational exchange to the success. Simply where
relational contracts are highly effective, requires a relationship that has
high levels of such relational attributes as trust and commitment that help
govern the exchange (Anderson and Narus 1984, 1990; Day
1995; Dwyer, Schurr, and Oh 1987; Heide and John 1992; Morgan and Hunt 1994;
Wilson 1995), where all those attributes are a created, developed and
exhumed through a social context or based on the social capital theory.

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