The aim of Part 1 of the book is to give a guided tour through the realm of interpersonal contracting. Covering the whole range of contracts, we try to carve out what we believe to be the central characteristics and properties of contracts at large. The topic of contracting is hence treated in a fairly generalist manner. We will demonstrate that a contract is determined by its context, including the identity of transactors, the nature of contingencies, the entitlements traded, the entitlement-specific transaction costs, the number of players, the time-horizon of a contract and the frequency of interaction. When negotiating the contractual framework, signatories must adapt their contractual design to the context of the situation. To judge whether they did a good, mediocre, or bad job of that, it is vital to understand the nature of the underlying contract in the first place.

Chapter 2 provides an introduction to the nature of contracts in general. We will focus on complete contracts and on the contracting ideal, the Pareto-efficient complete contingent contract. Chapter 3 discusses the nature of contractual incompleteness, and presents signatories' available strategies for overcoming the inevitable incompleteness that besets all real-life contracts. Special emphasis is thereby put on the optimal design of default rules, which can be phrased as liability rules, property rules, or rules of inalienability.