Theory of Relational Contracts

The Theory of Relational Contracts emphasizes that many agreements between parties are built on ongoing trust, mutual understanding, and shared expectations rather than just formal written terms. These contracts evolve over time through continuous interactions, friendships, and cooperation, making them flexible to changing circumstances. They rely on the relationships and social norms that develop between the parties, rather than rigid legal rules, to ensure commitments are honored. This approach recognizes that in real-world relationships—like between employers and employees or business partners—success depends on the strength of the ongoing, trust-based relationship.