Economic analysis is being applied by scholars to an increasing range of legal problems. This collection brings together some of the main contributions to an important area of this work, the economics of contract law. The essays and illuminating notes, questions, and introductions provided by the editor outline the Law and Economics framework for analyzing contractual relationships. The first two parts of the book present a number of useful concepts - adverse selection, moral hazard, and rent seeking - and a general way of thinking about the economics of contracting and contract law. The remainder of the book considers a wide range of topics and issues. The recurring theme is that contracting parties want to assign the responsibility for adjusting to particular contingencies to the party best able to control the costs of adjustment. The adjustment problem is exacerbated by the fact that the parties might engage in various types of strategic behavior, such as opportunism, moral hazard, and rent-seeking. Many contract law doctrines can best be understood as attempts to replicate how reasonable parties might resolve this adjustment problem.
Part 1. Some Preliminaries: 1. Non-contractual relations in business: a preliminary study Stewart Macaulay; 2. Relational exchange: economics and complex contracts Victor P. Goldberg; 3. Production functions, transactions costs, and the new institutionalism Victor P. Goldberg; 4. The market for 'lemons': quality uncertainty and the market mechanism George A. Akerlof; 5. A treatise on the law of marine insurance and general average, volume 1 Theophilus Parsons; 6. The economics of moral hazard: comment Mark V. Pauly; 7. The economics of moral hazard: further comment Kenneth J. Arrow; 8. Efficient rent seeking Gordon Tullock; Questions and notes on rent seeking; Part II. Contract Law and the Least Cost Avoider: 9. Unity in tort, contract, and property: the model of precaution Robert Cooter; 10. The mitigation principle: toward a general theory of contractual obligation (1) Charles J. Goetz and Robert E. Scott; 11. Relational exchange, contract law and the Boomer problem (1) Victor P. Goldberg; Questions and notes on the least cost avoider; Part III. The Expectation Interest, the Reliance Interest and Consequential Damages: A. Property in Price; 12. The reliance interest in contract damages Lon Fuller and William Perdue; 13. Note on price information and enforcement of the expectation interest Victor P. Goldberg; Questions and notes on protecting the property interest in the price; B. Reliance and Consequential Damages; 14. The contract-tort boundary and the economics of insurance William Bishop; 15. Notes on the reliance interest Robert Birmingham; Questions and notes on fault, consequential damages and reliance; Part IV. The Lost-Volume Seller Puzzle: 16. An economic analysis of the lost-volume retail seller Victor P. Goldberg; Questions and notes on the seller's lost profits; Part V. Specific Performance and the Cost of Completion: 17. The choice of remedy for breach of contract William Bishop; 18. Relational exchange, contract law and the Boomer problem Victor P. Goldberg; 19. Cost of completion or diminution in market value: the relevance of subjective value Timothy J. Muris; Questions and notes on specific performance and cost of completion; Part VI. Power, Governance and the Penalty Clause Puzzle: 20. Transaction cost determinants of 'unfair' contractual arrangements Benjamin Klein; 21. A relational exchange perspective on the employment relationship Victor P. Goldberg; 22. Liquidated damages versus penalties: sense or nonsense? Kenneth W. Clarkson, Rober Leroy Miller and Timothy J. Muris; 23. Further thoughts on penalty clauses Victor P. Goldberg; Questions and notes on power and penalty clauses; Part VII. Standard Forms and Warranties: 24. Institutional change and the quasi-invisible hand Victor P. Goldberg; 25. A theory of the consumer product warranty George L. Priest; Questions and notes on warranties; Part VIII. Duress, Preexisting Duty and Good Faith Modification: 26. Duress by economic pressure John Dalzell; 27. Gratuitous promises in economics and law Richard A. Posner; 28. The mitigation principle: toward a general theory of contractual obligation Charles J. Goetz and Robert E. Scott; 29. The law of contract modifications: the uncertain quest for a benchmark of enforceability Varouj A. Aivazian, Michael J. Trebilcock and Michael Penny; Questions and notes on duress; Part IX. Impossibility, Related Doctrines and Price Adjustment: 30. Impossibility and related doctrines in contract law: an economic analysis Richard A. Posner and Andrew M. Rosenfield; 31. Impossibility and related excuses Victor P. Goldberg; 32. Price adjustment in long-term contracts Victor P. Goldberg; Questions and notes on impossibility and price adjustment; References; Indexes.