Optimizing Contracting via Performance-Based Contracts

Elena-Iuliana Gheorghe – University of Bucharest, Faculty of Law, Bulevardul Regina Elisabeta Nr. 4-12, 030015 București, România

Abstract: Economic theory regards the contract as a trading instrument that provides an optimal allocation of scarce resources (Posner, 1973). In this view, the economic utility of the contract is conferred by its binding force, and its binding force is justified by its ability to increase general wel­fare. Contract formation is an essential starting point in economic analysis. The need to conclude contracts with clear and well-defined terms is press­ing. Primarily, a defective, incomplete contract, formulated in contradicto­ry terms, is an invitation to default (Almășan, 2018). Secondly, as a result of non-execution, the contracts in question are referred to the courts, which have the difficult task – of ascertaining the real intent of the parties and giv­ing it legal effect. The proliferation of problematic contracts has led to the undeniable reality that the courts are burdened with such disputes, which could easily have been avoided by better ex-ante consideration. In response to these inadequacies, Performance-Based Contracts have emerged. The development of performance-based contracts has been a collaborative and evolutionary process, influenced by academic research, economic theories, and the practical needs of organizations in various sectors. In light of the above, the article aims to analyze the advantages and disadvantages of performance-based contracting, the implications of the widespread use of this contracting method and its prospects.

LIMEN Conference

9th International Scientific-Business Conference – LIMEN 2023 – Leadership, Innovation, Management and Economics: Integrated Politics of Research – CONFERENCE PROCEEDINGS, Hybrid (Graz University of Technology, Graz, Austria), December 7, 2023

LIMEN Conference Proceedings published by the Association of Economists and Managers of the Balkans, Belgrade, Serbia

LIMEN Conference 2023 Conference Proceedings: ISBN 978-86-80194-78-3, ISSN 2683-6149, DOI: https://doi.org/10.31410/LIMEN.2023

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