The Lens of Contract: Private Ordering

Abstract

James Buchanan avers that “mutuality of advantage from voluntary exchange is…the most fundamental of all understandings in economics ” (2001, p. 29). He further contends that this fundamental understanding is better realized by examining economics through the lens of contract rather than the lens of choice (1975). Because the latter has been the reigning paradigm in economics during the 20th century (Robbins, 1932; Reder, 1999), the lens of contract is (understandably) less fully developed. Interest in contractual approaches has nevertheless been building up, whence the gap between these two has been closing. This paper sketches some of these developments, with emphasis on private ordering. I begin with a brief discussion of the lenses of choice and contract. I then argue that the contractual approach is responsive to a growing sense of unease with orthodoxy. The rudiments of the private ordering approach to comparative economic organization, with emphasis on ex post governance, are then set out. Fully formal theories of contract are briefly discussed. Concluding remarks follow.