The term “liberty of contract” is usually associated with the doctrine that the due process clause of the United States Constitution prohibits or should prohibit the State from regulating contracts between private individuals. Many libertarians and free-market advocates embrace the liberty...

This chapter surveys major issues arising in the economic analysis of contract law. It begins with an introductory discussion of scope and methodology, and then addresses four main topics that correspond to the major doctrinal divisions of the law of contracts. These divisions include freedom of...

Complex business contracts are notoriously difficult to write and read. Certainly, when litigation arises, courts scarcely have an easy time interpreting them. Indeed, contracts don't look at all as though they are written to tell a court what the parties want. Why can't smart, well-motivated...

Both economic and legal theory assumes that sophisticated parties routinely write agreements that maximize their joint surplus. But more recent studies analyzing covenants in corporate and government bond agreements have suggested that some contract provisions are highly path dependent and...

The decision making of judges is prone to error and misapprehension. Consequently, the prevailing literature ties the economic function of courts to dispute resolution and minimization of rule making costs. In contrast to previous research, this analysis applies a contract theoretic perspective...

In an environment in which sellers can reduce the probability of defective delivery through cooperative investment, and in which enforcement of default remedies for breach of contract is imperfect, an optimal performance standard grants buyers the option to reject goods for some but not all...

This paper studies the effect bargaining power has on self-enforcing contracts. Optimal contracts are characterized under three enforcement regimes. When enforcement is absent, I show that as the agent's bargaining power increases, her incentive payments decrease even though her total...

The following case study investigates the contract enforcement institutions that enable German customers to purchase software in Asia and Eastern Europe. The case study shows that nation-states are hardly able to generate a legal "shadow" for cross-border business relations. The same holds true...