A Relational Theory of Default Rules for Commercial Contracts

THE relationship between legal rules and the strategies that commercial parties use to deal with risk is among the most important and least understood topics in law and economics. Organizational theorists have generally confined their analyses to the nature of the firm and other permanent relationships.' Academic commercial lawyers, in turn, have been far less venturesome than their corporate colleagues in applying fundamental economic insights. Not surprisingly, therefore, we know very little about the inner workings of most commercial relationships. For these reasons (and more) I applaud efforts to integrate economic insights and legal structures, exemplified by Clay Gillette's imaginative essay on the nature of commercial relationships.2 Gillette makes two independent claims in his article. The first concerns how commercial parties deal with risk. The second concerns how we, as independent observers, can ferret out the strategies that these parties have pursued toward risk in individual cases. His second claim is potentially the more important. Although Gillette is cautious to note the limits of his project, he argues that the structural relationship between the parties provides a rich source of information that enhances our ability to predict the type of contractual terms that the parties would have chosen to govern their affairs when certain remote or unanticipated contingencies