Transaction Costs, Default Rules and Regulating Contracts in Islam: An Introduction to Economic Analysis of Islamic Contract Law

In this paper this question is tried to be answered: How did the Islamic Contract Law affect transaction costs? Our first approach for answering this question is a historical approach which compares the prevailing contract laws in the Northern Arabian Peninsula before and after the dawn of Islam. In the second approach which is an analytical approach we explained the role of Islamic legal teachings in filling the gaps of incomplete contracts. For this reason we explained how the Islamic jurisprudential rules could fulfill the mission of the default rules. Also, by referring to the informational problems we described how the Islamic teachings had regulated contracts. We studied the prohibition of some contractual forms that privileged in the pre-Islamic era as an obvious example of Islamic regulation of contracts. The findings of the paper show that we cannot accept the hypothesis that asserts: "Islamic Contract Law did not decrease the transaction costs."