In order to comprehend the intricacies of incomplete contracting, we should first get a grasp of complete contracting and the overall nature of contracts. This chapter represents a general law and economics (L&E) view on complete contracts and on contract design. We will deal with contracts in the most general way so as to include all sorts and types of contract, from simple handshake barters to national constitutions or sophisticated covenants with thousands of pages and hundreds of signatories. It should be acknowledged that owing to the diversity of real-life contracts, a general introduction to complete contracting is a daunting task, and one that necessarily implies painting with a broad brush.

The difficulties of generalization notwithstanding, all contracts share some fundamental properties. It is these commonalities we intend to concentrate on here in order to distill the essence of contracts, i.e. to filter out the common characteristics, motivations, and principles of contractual relationships. We will examine what constitutes a contract, why parties enter into contracts, and what determines signatories' ex ante willingness to cooperate in a self-enforcing contract (section 2.1). Next, we will assess the basic design of contracts (section 2.2), and distinguish different kinds of contracts (section 2.3). Finally, the contracting ideal of the Pareto-efficient complete contingent contract as the unachievable first-best will be introduced in section 2.4.