Julian Nyarko, Stickiness and Incomplete Contracts (Sept 1, 2019), available at SSRN. According to prevailing conceptions, the primary role of contract law is to give effect to the parties’ will (the so-called will theory of contract), thereby enhancing overall human welfare (the standard law and economics perspective). Thus, the law may legitimately intervene in the content of contracts, or otherwise try to influence the contracting process and its outcomes, only if there is some flaw in the contracting process (such as duress) or if there is a market failure (such as a monopoly or an acute information problem). In recent years, the notion of market failure has been extended to encompass behavioral market failures as well – that is, deviations from the assumption that people are invariably rational maximizers of their own utility. However, it is still commonly believed that the need for compulsory (mandatory rules) or choice-preserving interventions (nudges) is limited to transactions with relatively weak and unsophisticated parties – such as consumers, employees, and tenants … (more)
[Eyal Zamir, JOTWELL, 8 January]
First posted 2020-01-08 15:22:11
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