Macaulay, Stewart. 1963. "Non-Contractual Relations in Business. A Preliminary Study." American Sociological Review 28:55-67.


Author interviewed managers and lawyers at 43 companies and 6 law firms. The results stress the functions and dysfunctions of using contract to solve exchange problems and the influence of occupational roles on how one assesses whether the benefits of using contract outweigh the costs." p. 266

A contract is a rational planning of a transaction with careful privision for contingencies, and existence of legal sanction to induce performance of the exchange or punish non-performance. Contracts sometimes involve many lawyers and span hundreds of pages. Often they are for simple or common exchanges and have standard contracts printed on the back of forms. Most contracts disputes arise because of ambiguity exchange specifications.

Often salesman would accept contracts on a person's word or without settling the tougher details. Or the buyer and seller exchange forms and don't read the fine print on the back of their opposing form, legally nullifying the contract. This is known as "battle of the forms".

Many other contracts seem to be set up knowing that they would legally be unenforceable. Thus people take much care writing contracts, specifications, contingencies, but not in legal sanctions.

However, disputes are also resolved without resorting to legal means. Also firms may not pursue claims against exchange partners. People hesistate to take it to the courts.

 

Explanations

Often contracts are not needed because there is little room for honest misunderstandings. There are social norms to holding up their ends of contracts. Social relations across firms create social pressure deliver.

More importantly, firms want to continue trading and don't want to jeopardize this through breaking of contracts. Business groups can blacklist companies. Poor reputations can hurt sales. In fact, detailed negotiations can get in the way of building good exchange relationships. It can reduce feelings of trust and confidence between companies. Plus legal action can be costly to both continued exchange and the pocketbook.

Contractual arrangements are pursued when its to the firms advantage to have things clearly specified in advance (to avoid future concessions, when anticipating future problems, long term complexities, safety issues. Financial groups trying to minimize risk favor contracts more than sales organzations.