An economist view contract law as an arrangement which involves an agreement where parties undertake reciprocal promises. In economics this is simply known as a bilateral co-ordination arrangement. Over the years, contract law has attracted the attention of economic analysis which led to the development of three principles which are; transaction costs, incentives and incomplete contracts. The evolution of contract law through the lenses of economic analysis has led to our enhanced understanding of how market economies operate.
For record purposes it is essential to note that it was the economist who brought forth the concept of trade. There starting point was from the fact that all aspects of trade are voluntary. Economists therefore uncovered the thought that trade actually involves the search for necessary commodities. To add on to that the economists also formulated the concept of value which led to the conclusion that all trade is the reciprocated transfer of values and not objects. Economists further gave new meaning to contract by defining it as “an economic operation based on the subjective or objective equilibrium of the values that have been exchanged.” Based on the foregoing all contracts can be viewed as a transaction involving exchange of values.
Even as this essay provides an in depth analysis of contracts in the UK and economics, there is need to remember the importance of economic trade in the general theory of contract. This is because contracts involve the meeting of minds. The establishment of legally binding rules by a meeting of minds happens to be the common denominator in all contracts. In the event any contract or agreement lacks this element then it cannot be considered a contract.
Well renowned economists such as Smith and Walras have set the pace in economic analysis of contract law in the United Kingdom and all over the world. Their economic analysis is based on the operation of decentralized economies on the notions of the price and market system. Contract economics came to light in the late nineteenth century from a two-fold perspective which was the foundation of the Walrasian market theory. The Walrasian market theory had the following foundations:-
The above mentioned twofold foundations of the Walrasian market theory gives an explanation of the tremendous improvement of UK contract law and its main contribution to the essential reformation of all avenues of economic analysis. This ranges from the study of macroeconomic aggregates (for instance labor market) to that of interactions which are microeconomic.
Even though contract law is viewed from a simplistic perspective, there are four important issues which bring out the analytical power of economics:
 Bebchuk, L.A. and Shavell, S. “Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale”, (1991) Journal of Law, Economics and Organization, 7(2): 284–312
 Collins, H. Regulating Contracts, (1999) London, Oxford University Press
 Crew, M.A. and Kleindorfer, P.R.“Price Caps and Revenue Caps: Incentives and Disincentives for Efficiency”, in M.A. Crew (ed.), Pricing and Regulatory Innovations under Increasing Competition, (1996) London, Kluwer Academic