Empiricalexpeditions on the nature of the contracts is not a new thing. Some importantstudies and various scholars have observed and come out with distinctive roots ofempirical explorations on contracting relating to Steward Macaulay’s seminalwork in 1963 (Eigen, 2012).Thetheory “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 ofcontracting, he avoids treating any governance models of exchanges, where mostof his work is related to the social environment and behavioral norms. On the other hand, Macaulay defined it simplyoccur based on the trust between parties (1963). It may be said that empirics are on their way ofperceiving the importance of this concept, which has had a significantly longerpersuasion in scholarship in law and social sciences (Eigen, 2012).Thistheory was created as a result of the arguments which was brought by some 90’sscholars criticizing the view of the theories consent belongs at the heart oftraditional and classical contract laws (Barnett,1992; Campbell,2004; Williamson,2007).
Famously Charles Fried (1981), Grant Gilmore (1974), & Ian MacNeil (1985) theorizedon those contracts and pointed out that the shortcoming born due to theinconsistency between, how a contract assumed to be experienced by the law andhow it actually be experienced. Perhaps it was the earlier work by StewardMacaulay (1963) then Ian MacNeil (1980) thatevaluated the periphery under which parties expected to engage in contractsbetween businesses that barely paved the way for these theoretical reconciliations(Eigen, 2012).Over time, contract law might not have evolved very much away fromeconomic and business studies. The term “contract” as a concept has beendeveloped historically with an ancient mean of managing and regulating dyadicexchanges (Eigen, 2012).
Contracts are manifestations of legally enforceableagreements that can be found in all kind of business alliances, strategicpartnerships or collaborations and it creates an intention to be legallybounded to fulfill a commitment. (Heide andJohn, 1990; Roxenhall and Ghauri, 2004; Baker, Gibbons and Murphy, 2008).(Barnett,1992; Mouzas& Blois,2008). To have a better understanding on the complexity ofdisciplinary approaches and questions framed on contracts raised in modernempirical explorations many scholars, courts and legislators in various fieldshave bring out a more simplified definition on contracts, as the product ofbilaterally exchanged commitments freely negotiated and agreed upon by theparties (Macaulay 1963; McIntyre 1994).The nature, attributes and forms of contracts has beeninvestigated by scholars using various approaches under different disciplinesand emphasis, (Argyres & Mayer,2007; Blois,2002; Harrison, 2004; Schwartz & Scott, 2003) andhave provided a view through different angles which to study exchangerelationships.
Within a corporate world of exchange relationships, whichcentralizing to some dominant research works (e.g. Lambe, Spekman & Hunt,2000; MacNeil,1980;1985; Macaulay,1963; Williamson,1981;2007), understanding theforms and nature of the contractual management is an important issue. Suchunderstanding allows individuals to examine how contractual decisions are beenachieved and expressed under different modes of governance that functionbetween interrelated companies in business network (Mouzas & Blois, 2008).The experience of independent contracting has been, anticipatedand the comparative reconfiguration from long term contracting to common ownershipis 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 legallybounded on a particular transaction, it will generate a mode of relationalgovernance in the long term.
The common view on legal rules provide moreelastic concept of contract as framework, where the framework never preciselydenotes an exact outlook of the relational influences on exchanges, but afforda rough idea around which such relations can be vary (Williamson, 2007). However, some economists proposed that “there is anotherpossible remedy when contracts are imperfect: leave the governance structurealone, but move to “relational contracting” (Gibbons,2005, p.236).A relational contract is a relational or a self-enforcingagreement so rooted within parties in particular circumstances while itcontains some elements which cannot be enforced by a third party, such as courtand contains absolute elements where third parties are unable to verify whethercontractual obligations have been met (Gibbons,2005; Mouzas & Blois,2008).Indeed. relational contracts are frequently based upon unwritten codes andconducts of informal agreements, for economists it can be create indefinitesituations that makes a doubt on relational elements which referred to theinterpretation and the establishment of contracts (Mouzas & Blois, 2008).
So on one hand benefits of the relational contract is that theyallow “the parties to utilize their detailed knowledge of their specificsituation 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 beenforced by a third party (Mouzas & Blois, 2008).Moreover relationalcontracts within and between firms help to evade difficulties in formalcontracting mainly difficulties occur due to the enforcement of a third partysuch as court (Baker, Gibbons, & Murphy, 2002) and by maintaining along term orientation and long term relational contracts ,it helps firms toperform well achieving mutual gains in voluntary exchanges (Buchanan, 2001) while mitigating hold up problemsbetween parties (Kukharskyy & Pflüger, 2010).Much of the work related to ‘relationalcontracts’ was based on the studies of Ian Macneil where he claims there is aseparate ‘relational’ category of contracts (Campbell,2004). What he refers toas “relational” form of contracting, involves arbitration, collectivebargaining and other types of contractual market exchanges that are becomingmore important and need to be recognized (Williamson, 1981). Macneil presents nothingless than a “holistic” “socialtheory” 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 andsuccess. Most importantly, however, the convention theory of contract is an unabashedrelational theory of contract (Barnet,1992). According to Barnett’s(1992) original presentation of a consent theory: “Any concept ofindividual rights must assume a social context” and he proposed that certainrights are important, to enable the existence of a relational order of actionsthat allow persons to solve the various problems of knowledge and interest.
Andaccorded with the second feature of Macneil’s theory that merits investigation ishis consistent assertion that standing behind all relational exchange orcontracts is a socially enforced system of property (Barnet,1992). Inrelational exchange, the relationship is a critical governance mechanism and, akey determinant that lead a relational exchange to the success. Simply whererelational contracts are highly effective, requires a relationship that hashigh levels of such relational attributes as trust and commitment that helpgovern the exchange (Anderson and Narus 1984, 1990; Day1995; Dwyer, Schurr, and Oh 1987; Heide and John 1992; Morgan and Hunt 1994;Wilson 1995), where all those attributes are a created, developed andexhumed through a social context or based on the social capital theory.