Neoclassical Contract Theory

Neoclassical Contract Theory studies how parties design agreements to allocate resources and responsibilities efficiently. It assumes individuals are rational and seek to maximize their benefits while minimizing costs. The theory focuses on creating contracts that solve issues like asymmetrical information (where one party knows more than the other) and prevent opportunistic behavior. It emphasizes clear rules and incentives to ensure both parties fulfill their roles, leading to mutually beneficial outcomes. Overall, it aims to understand how well-structured contracts promote cooperation, efficiency, and stability in economic and social transactions.