Game Analysis of Basic Principles of Contract Law

Author: Ke Huqing
Publisher:
Publish Date: 2006-11-01
Features: Game analysis of law is the basic method of legislation. The legislative goals must be consistent with the implementation results, requiring legal entities involved in the game to reach a Nash equilibrium. Truly effective legislation is both the rules of the game and the outcome of the game. The conclusion derived from the bargaining game is that without bargaining, there can be no true contract. The principle of good faith contains two meanings: honesty and fulfilling contractual obligations, as well as balancing the interests of contracting parties. Through the analysis of lending and repeated games, we conclude that imposing legal liability on fulfilling contractual obligations leads to Pareto improvement. The analysis of the incompleteness of contracts, information asymmetry, adverse selection, and moral hazard shows that cooperation based on good faith is mutually beneficial, whereas failure to cooperate may lead to the prisoner's dilemma.