Although electronic commerce (e‐commerce) can be a source of competitive advantage, will e‐commerce businesses in countries like China flourish when governments still take a “wait‐and‐see attitude” as to prompting, protecting, and regulating e‐commerce? The paper employs transaction cost economics in analyzing the role of government in regulating electronic contracting. Due to the transaction costs arising from e‐commerce, explicit contracts between parties are usually incomplete. The paper argues that these contracts should always be backed by implicit contracts, which are determined by default rules in various governments. Therefore, it behoves governments urgently to fill gaps in incomplete contracts in e‐commerce in order to foster a predictable legal environment for e‐businesses, minimize legal risks and transaction costs, and maximize economic and social benefits. The authors believe that governments must also act in concert with one another at the international level to create a favorable and consistent commercial environment.
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