Should Courts Always Enforce What Contracting Parties Write?
-
Luca Anderlini
We find an economic rationale for the common sense answer to the question in our title – courts (that maximize parties’ welfare under a veil of ignorance) should not always enforce what the contracting parties write. Courts can improve on the outcome that the parties would achieve without their intervention. We study a buyer-seller model with risk-neutral agents and asymmetric information. The court must decide when to uphold a contract and when to void it. The parties know their private information at the time of contracting, and this drives a wedge between ex-ante and interim-efficient contracts. In particular, if the court enforces all contracts, inefficient pooling obtains in equilibrium. By voiding some contracts the court is able to induce them to separate, and hence improve ex-ante welfare. Our results can also be interpreted as supporting the normative case for mandatory rules in contract law.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Artikel in diesem Heft
- Article
- In the Beginning Was the Word. Now is the Copyright
- The $700 Billion Bailout: A Public-Choice Interpretation
- Corporate Liability and Internal Procedures
- The Social Cost of Blackmail
- The Problem of Social Cost: What Problem? A Critique of the Reasoning of A.C. Pigou and R.H. Coase
- Should Courts Always Enforce What Contracting Parties Write?
- Implementing Relevant Market Tests in Antitrust Policy: Application to Computer Servers
- English Rule and Frivolous Suits: Conditional versus Hourly Fees
- Compliance Institutions in Treaties
- A Note on the Deterrence Effects of the Forfeiture of Illegal Gains
- Fostering Regulatory Compliance: The Role of Environmental Self-Auditing and Audit Policies
- Free-Riding on Altruistic Punishment? An Experimental Comparison of Third-Party Punishment in a Stand-Alone and in an In-Group Environment
- Corporatization and Firm Performance: Evidence from Publicly-Provided Local Utilities
- Securities Class Actions: A Helping Hand for Bank Regulators in Trouble?
- The Multiplier Effect of Public Expenditure on Justice: The Case of Rental Litigation
Artikel in diesem Heft
- Article
- In the Beginning Was the Word. Now is the Copyright
- The $700 Billion Bailout: A Public-Choice Interpretation
- Corporate Liability and Internal Procedures
- The Social Cost of Blackmail
- The Problem of Social Cost: What Problem? A Critique of the Reasoning of A.C. Pigou and R.H. Coase
- Should Courts Always Enforce What Contracting Parties Write?
- Implementing Relevant Market Tests in Antitrust Policy: Application to Computer Servers
- English Rule and Frivolous Suits: Conditional versus Hourly Fees
- Compliance Institutions in Treaties
- A Note on the Deterrence Effects of the Forfeiture of Illegal Gains
- Fostering Regulatory Compliance: The Role of Environmental Self-Auditing and Audit Policies
- Free-Riding on Altruistic Punishment? An Experimental Comparison of Third-Party Punishment in a Stand-Alone and in an In-Group Environment
- Corporatization and Firm Performance: Evidence from Publicly-Provided Local Utilities
- Securities Class Actions: A Helping Hand for Bank Regulators in Trouble?
- The Multiplier Effect of Public Expenditure on Justice: The Case of Rental Litigation
