An Economic Approach to Morals in Contract Law

Morals are the fundamental values on which majority of a community are agreed based on norms and beliefs. Morals are principles such as: good faith, honesty, commitment to cooperation, lack of deception, fairness, justice, loyalty and non-discrimination. Ethics is inner which leads to utility, reduction of transaction cost, wealth maximization, efficiency and welfare by building trust, averting opportunism and, optimized commitment to obligation. It would be too expensive to apply for a contractual guarantee; to adopt a mutual strategy, which is sometimes against the initial incentives of conclusion, and an effort to gather more information in order to prevent the other party's opportunism. It seems that including explicit non-law clauses, such as duty of respecting morals in order to prevent opportunism, is not only regarded as a means of internalizing the costs and but also as a sequel of such measures, it comes with fall in transaction costs and rise in contract efficiency. Adhering to morals in contracts and adhering to them can lead to contract performance by reducing contract termination, breach of commitment, renegotiation, contract adjustment, moral hazard and adverse selection. Without consideration of the utility of exchange, as a cross between justice and efficiency, the commutative justice will be violated, because the inefficient contract, won't be fair either.