Contracting in the shadow of the law

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Contracting in the shadow of the law

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dc.contributor.author Chakravarty, Surajeet en_GB
dc.contributor.author MacLeod, W. Bentley en_GB
dc.date.accessioned 2010-11-04T15:14:22Z en_GB
dc.date.accessioned 2011-01-25T10:25:32Z en_US
dc.date.accessioned 2013-03-19T15:51:28Z
dc.date.issued 2009-07 en_GB
dc.description.abstract Economic models of contract typically assume that courts enforce obligations based on verifiable events (corresponding to the legal rule of specific performance). As a matter of law, this is not the case. This leaves open the question of optimal contract design given the available remedies used by the courts. This article shows that American standard form construction contracts can be viewed as an efficient mechanism for implementing building projects given existing legal rules. It is shown that a central feature of these contracts is the inclusion of governance covenants that shape the scope of authority and regulate the ex post bargaining power of parties. Our model also implies that the legal remedies of mistake, impossibility and the doctrine limiting damages for unforeseen events developed in the case of Hadley v. Baxendale are efficient solutions to the problem of implementing complex exchange. en_GB
dc.identifier.citation The RAND Journal of Economics, Vol. 40, Issue 3, pp 533 - 557 en_GB
dc.identifier.doi 10.1111/j.1756-2171.2009.00076.x en_GB
dc.identifier.uri http://hdl.handle.net/10036/114749 en_GB
dc.language.iso en en_GB
dc.publisher Wiley en_GB
dc.relation.ispartofseries NBER Working Paper en_GB
dc.relation.ispartofseries 13960 en_GB
dc.relation.url http://www.nber.org/papers/w13960 en_GB
dc.subject contracts en_GB
dc.subject economic models en_GB
dc.title Contracting in the shadow of the law en_GB
dc.type Article en_GB
dc.date.available 2010-11-04T15:14:22Z en_GB
dc.date.available 2011-01-25T10:25:32Z en_US
dc.date.available 2013-03-19T15:51:28Z
dc.identifier.issn 07416261 en_GB
dc.identifier.issn 17562171 en_GB
dc.description Draft version issued as NBER Working Paper No. 13960, April 2008. Final version available online at http://www3.interscience.wiley.com/ en_GB
dc.identifier.journal The RAND Journal of Economics en_GB


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