ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Friday, November 26, 2004

Economics, interpretation, and incomplete contracts

A couple of interesting new papers with an economic bent are mentioned over at Lawrence Solum’s Legal Theory Blog.  They're still in workshop form, but they’re both of interest to Contracts teachers.

In the first, Judge Richard Posner notes that the interpretation of contracts is one of the least-studied aspects of contract law and economics, and takes a stab at it in The Law and Economics of Contract Interpretation.  His goal is to show that interpretation involves more than textual analysts or cognitive psychology, but that that economics has a role to play in determining the meaning of ambiguous terms.

And in Contingency and Control: A Theory of Contracts, Lewis Kornhauser and Bentley Macleod set themselves a large task: reconciling the theories of incomplete contracts with the economic analysis of contract law.  They start by recognizing that contracts are made in different environments, and different types of contracts are suitable to different forms.  In particular, they distinguish between what they call contingency contracts and control contracts, and argue that the contract regime should change depending on the type of environment in which contracting occurs.

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