Contracting in the shadow of the law
By: Surajeet Chakravarty, W. Bentley MacLeod.
Contributors: MacLeod, W. Bentley 1954-; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 13960; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13960.
Publisher: National Bureau of Economic Research
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "Economic models of contract typically assume that courts enforce obligations on the basis of verifiable events.  As a matter of law, this is not the case.  This leaves open the question of optimal contract design given the available remedies that are enforced by a court of law.  This paper shows that standard form construction contracts can be viewed as an optimal solution to this problem.  It is shown that a central feature of construction 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 provides a unified framework for the study of the legal remedies of mistake, impossibility and the doctrine limiting damages for unforeseen events developed in the case of Hadley vs.  Baxendale"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/2/2008.

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