Contract Theory

The expression contract theory refers to a large variety of conceptions in social sciences. In the vast literature dedicated to the topic in economics, contract theory consists of the study of microeconomic relations between agents within a market. In law, contract theory is equally important and pertains to the analysis of contract law. But the most dominant usage of the expression contract theory is political and this is also the sense that will apply in this entry.

Within the realm of political theory, contract theory refers to a set of philosophical ideas, mostly developed since the 17th century, the goal of which is to offer a rational understanding of the creation of society and political powers. It also induces a normative reflection on the legitimacy of powers. A subset of preoccupations derives from this broad consideration and regards as crucial for political theory topics such as the place of religion in a collectivity, the question of the sovereignty, the respective role of the people and the prince, and basic rights and liberties. Beyond the borders [Page 437]of political thought, contractarian theoreticians have often addressed issues relevant to psychology, anthropology, law, and economics.

The core of contract theory, in this political sense, is the fundamental intuition that all social dealings are based on an initial agreement between individuals to belong to the same society and to obey certain designated authorities. Hence the idea of a “contract” at the root of social existence—often known as the “social contract” after Jean-Jacques Rousseau's famous book, On the Social Contract, published in 1762. According to Rousseau (1712–1778), the ties that bind individuals within a society are the outcome of a contract between them that was initiated at the beginning of this very society. Regarding the contract itself, it is a deliberate decision of each individual who sees the value of being engaged in society where rules limit liberty rather than being left alone in total freedom. This is why contract theories are all based on the idea of a reasoning individual able to recognize the greater benefits of society.

Whether this contract is regarded by authors as actually having been sealed in the course of history or whether it is for them only a fruitful hypothesis, the basic principle of contract theory is to regard society as the result of such a pact between individuals. Further, contract theory purports structural consequences such as individual rights and liberty. Indeed, if individuals had no rights, they could not logically engage in a contract (they would literally not have the right to do so). And if the contract they are engaged in did not guarantee some rights or liberty—in other terms, if social existence meant the total alienation of individuals—it would be impossible to understand why individuals would have chosen to submit to such an unfair contract and on what basis it should subsist.

Contract theory is quintessentially modern. It reflects the decisive evolution of Western political thought from the 16th century on toward an “individualistic” understanding of society and politics for which any collectivity is regarded as the distant eventual result of individual decisions. As a matter of fact, contract theory is not the only modern political conception able to accommodate individualism. But it has been one of the most prominent: If the rise of revolutionary doctrines challenged the contractarian approach in the 19th and 20th centuries, it never totally superseded it. It then gained renewed attention after the works of the philosopher John Rawls (1921–2002) in the 1970s, which insisted on the necessity of having common principles of justice agreed on in a well-ordered society. His influential Theory of Justice, published in 1971, claims the heritage of the tradition of the social contract and has had a considerable influence, which still continues to feed contemporary political thought.

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