Effects of Transaction Costs on Organization Inefficiencies in Developing Contract Self - Performance Path

Document Type : Research Paper

Author

Assistant Prof., Department of Economic Law, Faculty of Law, Shahid Beheshti University, Tehran, Iran

10.22099/jls.2025.52131.5255

Abstract

Introduction
One of the most significant challenges facing legal systems, with far-reaching economic, social, and cultural consequences, involves the pervasive issue of contractual non-performance. This phenomenon adversely impacts overall business conditions by generating excessive transaction costs for contracting parties and third-party stakeholders alike, ultimately hindering the development processes within both legal and economic systems. Transaction costs consume substantial portions of organizational resources across various institutions, leading to marked reductions in operational efficiency and economic productivity. These costs create systemic barriers that undermine contractual relationships and impede commercial growth.
Methods
This research employs an analytical-descriptive methodology to examine the multifaceted effects of transaction costs on organizational inefficiencies within the framework of contract self-performance. The study comprehensively
reviews library resources, analyzes World Bank reports, and evaluates the legal capacities established by both the Iranian Constitution and Development Plan Acts. Through this multi-dimensional approach, the investigation seeks to identify key institutional factors influencing contractual efficiency.
 
Results and Discussions
The analysis reveals that among various transaction costs affecting contractual relationships, the most impactful include inflation rates, communication expenses, the degree of property law protection, and costs associated with information gathering and regulatory compliance. These transaction costs exert diverse influences on organizational functionality and contract performance, with varying degrees of impact depending on their specific interaction dynamics within different institutional contexts.
Critical impediments to contract self-performance emerge from several systemic deficiencies: limited contractual protections through available remedies, inefficient judicial processes for contract enforcement, and inadequate safeguards for property rights. These structural weaknesses impose substantial transaction costs on obligees, often making recourse to judicial or arbitration procedures prohibitively expensive and thereby undermining potential compromise solutions. The protracted and complex nature of legal proceedings frequently incentivizes defaulting parties to strategically increase the obligee's costs, coercing them into accepting economically disadvantageous settlements.
Furthermore, deficiencies in property law systems that fail to adequately protect citizens' assets or complicate ownership registration processes create significant information transparency barriers. These institutional shortcomings substantially elevate transaction costs related to information accessibility, further impairing contract self-performance capabilities. Consequently, transaction costs represent a pivotal legal and economic issue with profound implications for contractual relationships and broader development processes.
 
Conclusions
The Iranian Constitution, as the foundational legal framework, establishes essential institutional prerequisites for effective contract self-performance through various constitutional provisions. Principle 22 explicitly safeguards citizens' property rights, while Principle 34 guarantees access to justice, and Principle 40 prohibits the abusive exercise of rights. These constitutional mandates provide critical legal underpinnings for contractual relations. 
Complementing these constitutional protections, Development Plan Acts serve as vital formal institutions that systematically reduce transaction costs and enhance contract self-performance efficiency. These legislative instruments incorporate specific provisions designed to improve business development indicators and facilitate contractual compliance. Together, these legal frameworks create an interconnected system that addresses the multifaceted challenges of transaction costs while promoting more efficient contractual relationships.

Keywords

Main Subjects

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    Laws

    Islamic Republic of Iran Constitution

    Plan Laws of Economic, Social and Cultural Development of Islamic Republic of Iran

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