Unfair deals are prevalent, which does not serve the interests of the harmed party to a deal nor society more generally. The law tends to focus on providing the harmed party the means for gaining compensation for unfair deals, which distracts attention away from investigating the reasons and motivations for the stronger party offering and entering into unfair deals in the first place. This article seeks to address this deficiency by proposing a theory – here coined “deal theory” – to explain “dealor” behaviors and motivations. The theory builds on insights offered by relational contract theory, the ultimatum bargaining game and behavioural economics; as well as making its own theoretical claims.
It is here claimed that the dealor makes 3Rs cost calculations – regulation, reputation and resentment costs – before deciding whether or not to offer an unfair deal. A dealor might seek to mitigate these costs by deploying cheat and bully strategies. The legislative and regulatory challenge is to harness the 3Rs costs to provide disincentives for unfair deals. This article pays particular attention to the resentment cost because its potential effectiveness in constraining unfair behaviour has generally been underestimated.
It is claimed in this article that a heightened understanding of the strong party’s incentives and motivations for offering and performing unfair deals by using the insights offered by deal theory can help improve the legal, administrative, economic and other measures that can promote the interests of the harmed party and society more generally.
Available at: http://works.bepress.com/justin_malbon/1/