Standards and the form of agreement - 2002 presidential address western economic association

Contract stipulations tend to be subject to commodity standards. Standards make it clearer what transactors have agreed upon. They also bring stipulations from different contracts under a common denominator. The lower the cost of measuring an attribute and the wider the range of its application, the higher the likelihood that the attribute will become subject to new standards. New standards are predicted to increase the role of contracts in agreements and to reduce that of long-term relations; to lower the prices of the commodities that use the standards; to increase the rate of theft of these commodities; and, by making it clearer what it is that parties exchange, to reduce the level of vertical integration. Finally, new standards propel markets toward perfect competition.