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Contract Theory & Sweden’s competitive position

Contract Theory & Sweden’s competitive position

Nobel laureate Oliver Hart and Lindahl discuss the competitiveness of Swedish business – new vision of contracts deemed necessary

”The Swedish network economy has great potential. To fully realize this and to prepare for the future, we need to stop unnecessary leakage of value arising out of conflicting interests. Here, Oliver Hart’s theories on how contracts should be designed are central; a focus on fairness and clear communication is the basis for mutual value creation”, says David Frydlinger at Lindahl.

It was an attentive audience that listened to Professor Oliver Hart of Harvard University, one of this year’s laureates of the Nobel Prize in Economics, talk about various contract designs and the possibilities and practical implications for the Swedish economy. The seminar was moderated by David Frydlinger, head of Lindahl’s strategic contract group.

The seminar confirmed that Sweden stands strong in the global economy. At the same time, speakers described how the fourth industrial revolution is upon us. This means that competitiveness will be increasingly built on the innovation that takes place though networking between organizations, partnerships, joint investments and shared knowledge. Often, this will require a more modern view of how contracts are drafted and concluded.

For the future network economy to succeed, it needs to be supported by a strong infrastructure that is designed, built and financed in close cooperation between public and private actors. This also requires more modern contracts and careful consideration of public and private ownership, according to both speakers.

Oliver Hart’s theories provide invaluable guidance as to how Sweden ─ and indeed many other countries ─ can approach the challenges our economy faces. The most important lesson is the need for a new vision of what the contract can achieve, where a design based on common interests, fairness and clear communication processes – so-called relational contracts – can effectively reduce the value leakage that currently arises from conflicting interests.