Economic Analysis Of Incomplete Contracts

It has been a relatively long period since the basic theory of the economics of law was introduced to China, and some scholar has achieved some results of significance through the research of applying the logic positive analytical method of economics to the matters of law. However, the progress concerning the said research, in fact, shall not be considered a great one. The reason for this may be analyzed roughly from the two main aspects stated below: on the one hand, most of jurists have a lack of the systematic knowledge of economics and this may be a demanding requirement for them; on the other hand, there is a severe conflict existing between the Values of economics and the Values of law, and to some extent, the former may be held a counteraction against the latter. Although having never received a special training on the knowledge of economics, I view it a real pity to abandon the distinctive prospective of economics in the research field of law, therefore the author makes an attempt on the economic analysis of the incomplete contract.This paper begins with discussions of the concept of fairness and efficiency with the major reference of the views of economist other than those of jurists. Little difference is held over the definition of efficiency at present, the understanding below of Pareto—"as for some economic resources, if there is not a more feasible allocation which enables all the individuals within the economic system at least enjoy the same as those of the very beginning, and this allocation enables at least one individual enjoys better than the beginning, the said resources allocation is the best one"—constitutes the essential content of the definition of efficiency. Although Williamson actually establishes the untruth of the concept of efficiency of Pareto from the perspective of the asymmetric information, limited rationality and opportunism, etc. Kaldor and Hicks argue that the efficiency of the whole society is more important than that of the loss of some individual. Additionally, some other economists addresses a wide variety of critics on the concept of efficiency of Pareto, but none of them could overthrow the optimum state of Pareto, and all those remarks are only confined to target at various kinds of the restrictive conditions of the concept. Understanding of fairness by economists is a controversial subject and no agreement has ever been reached. They seek the normatively standard answer through different research perspectives such as utility, market orientation, ethical philosophy, subjective minds, etc. In doing so, they have achieved two opposite conclusions, the fairness of opportunity and the fairness of consequence. As far as the relationship of fairness and efficiency is concerned, crusaders for the fairness priority view polarization between the rich and the poor as a violation of the principle of the borne equality. They elaborate the priority of fairness to efficiency in accordance with the law of marginal descending of consumption tendency and the law of marginal descending of capital profit. Advocators for the efficiency priority hold that any deprivation of the income of a portion of people according to the fair principle will encourage the laziness of those who receive benefits without participation in the work and depress the workers, and as a result neither the fairness nor the efficiency will be...