The first paper in this book appeared over two decades ago in a sociology journal. Nevertheless, Stewart Macaulay's paper on the use (and nonuse) of contracts by businessmen has had a considerable influence on economic scholarship. The paper provides a good picture of how businessmen view contracts and why contract language is often of little relevance in describing the behavior of contracting parties and influencing the resolution of disputes. It provides a commonsense backdrop for much of what comes later.

A distinguishing feature of this collection of readings is the focus on “relational exchange” as opposed to “discrete transactions.” These are analytical constructs, not categories for classifying existing contractual arrangements. The former concerns arrangements in which contracting parties are isolated, to some degree, from alternative trading partners and the outcomes depend in part upon the behavior of the parties during the life of the contract. The latter concerns exchange of commodities in thick markets (a lot of buyers and sellers); the fact that a buyer enters into a contract with a particular seller today does not give that seller any advantage or disadvantage vis à vis other sellers in subsequent dealings with that buyer. As we shall see, most of the interesting, and difficult, questions of contract law disappear in a world of discrete transactions. In Selection [1.2], I provide a brief introduction to the concept of relational exchange. This is followed by a discussion of “transactions costs,” a term I am somewhat uncomfortable with. The reasons for that discomfort are spelled out in [1.3].