Public Goods and Contract Standard Clauses : A New Approach

The aim of this work is to show how it is possible to identify market failures other than those traditionally identified by lawyers and law and economics scholars to justify the mandatory provisions of contracts between professionals and consumers and the equally mandatory provisions governing the abuse of economic dependency. This is a new approach that can be extended to other provisions and appears to rest on fairly solid microeconomic foundations. There is no doubt, however, that many criticisms can be leveled against it. Very briefly, I shall argue that the production of clauses characterized by being rather vague, indeterminate and open to discretionary interpretation by judges is a public good in the economic sense, insofar as the clarification of their content, which is normally achieved through court decisions, can also benefit persons who have not paid for their production and who have no intention of paying, i.e. free riders. The costs would consist in the drafting of the clause and the legal costs due to disputes, as well as the reputational costs if the court decisions are unfavorable to the drafter. The consequence is that a producer who inserts a clause that is vague, i.e. not fully specified, would have to bear all the costs for its clarification and the operation would no longer be to his advantage. The result is that a potentially efficient clause is not inserted into contracts