. Contract Law and Economics Movement
Instead of having contract law and economics on two different platforms, it is important to have the same combined so as to formulate proper operational structures. There various factors which are behind this combination of contract law and economics.
3.1 Human Actors
Herbert Simon states that,”Nothing is more fundamental in setting our research agenda and informing our research methods than our view of the human beings whose behavior we are studying.” Human actors possess a transaction cost that is brought out by human actors’ cognitive ability and their ability to foresee. Intertwining of economics and contract has been made possible by the fact that the parties involved normally think ahead and take note of the hazards which might affect the contract. Human actors normally take measures to ensure mitigation of contractual hazards by putting in place operational structures.
3.2 Unit of analysis
The contractual transaction is deemed as the basic unit of analysis. The approach taken by human actors in unit of analysis is whereby they have to identify the main essentials of transactions that might lead to various hazards that will intrude on both economic movement and contract theory.
Having realized contractual transaction falls under the basic unit of analysis there is a greater want for harnessing it for economic reasons. This is where governance as a concept comes in. In this situation governance serves as a means through which order is attained with respect to conflicts that might arise in future thus threatening to undo any mutual gains achieved. It is at this point that contract law is fused with economics for purposes of transcending technology.
Quite a number of relationships in economics are contractual. This can be elaborated by the fact that contractual parties normally enter in negotiations and find a mutual ground based on their interests that will lead to enforcement of their agreement. Enforcement of the same can be expected from two sources; external agents who are not part of the contract thus referred to as external enforcement and the parties in the contract referred to as self-enforcement. Majority of the economic contracts entail a balance of both internal enforcement and external enforcement.
In order to understand the dimensions of game theory in relation to contracts and economics there is need for analysis of contractual settings that entail both self-enforced components as well as externally enforced components. In setting the example there is need for an understanding of the three factors that play a role in contracts and economics with regards to game theory.
First and foremost, externally enforced and self-enforced components can be set on various categories of events because the parties’ differences in terms of information and that of an external enforcer. Secondly, the choice of externally enforced and self-enforced components of contract involves the common components which particularly focus on relative bargaining power and disagreement points. Thirdly, the above mentioned components are tailored towards self-enforcement rather external enforcement. The reasoning behind this shift is because the impact for self-enforcement relies on how negotiation statements impact the manner in which the players operate on an individual basis later on.
 Farnsworth, E.A. “On Trying to Keep One’s Promises: The Duty of Best Efforts in Contract Law”, (1984) University of Pittsburgh Law Review, 46: 1–20
 Green, R.J. and Newbery, D.M. “Competition in the British Electricity Spot Market”, Journal of Political Economy,(1992) 100(5): 929–53