The Transactional Dynamics of Market Fragility

Abstract

This Article takes a step toward more clearly diagnosing market fragility for the purpose of developing better policy choices that anticipate and address future crises. It does so by connecting two erstwhile and distinct literatures: the legal scholarship on relational contracting and the social science on the diffusion of shocks in economic networks. This Article attempts to connect the strategies parties pursue in designing their agreements—a familiar topic to contract scholars—to the diffusion patterns observed in disrupted markets—an increasingly important area of study in macroeconomics. By investigating that intersection, this Article introduces a new potential policy domain for remediating market fragility: Contract design.

Keywords: markets, contract law, contract design, economic networks, relational contracting, market fragility