Law Commons^™

Contract Law's Inefficiency, David M. Driesen

David M Driesen

Neoclassical economic theory seems to aptly characterize contract law’s essence. Contracts enable two parties to reach a mutually beneficial agreement, thereby facilitating economically efficient transactions. It would seem to follow that the achievement of economic efficiency serves as contract law’s major goal. This article, however, examines an alternative hypothesis, that contract law is about enforcing inefficient bargains in order to provide enough security to facilitate cooperation among economic actors over long periods of time. On this account, contract law manages change over time, rather than achieves static efficiency. While recognizing that parties execute contracts in order to realize an efficient …