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The Construction Contract in Chile. Economic and Jurisprudential Analysis.

Abstract

Construction agreements, and especially those of lump sum, are designed not only to transfer the price risk from the principal to the contractor, which is the party that is in the best position to evaluate and control said risk, but for eliminating or mitigating the problems that arise from the information asymmetry between the contracting parties, including the phenomena known as adverse selection and moral hazard. If these phenomena are effectively controlled, it can be concluded that this type of contract will tend to promote market efficiency, reduce transaction costs and maximize the so-called social surpluses of cooperation. The measure in which these contractual designs ultimately reach their objectives depends on the value that, in reality, the jurisprudence attributes to them. Analyzing the recent jurisprudence of the Chilean high courts of justice, it can be concluded that, in general, judges tend to respect these contractual mechanisms.