A Bargaining Power Theory of Gap Filling
|Date||21 May 2007|
|Time||11:45 - 13:15|
This article explores the merits of a new criterion for default rules in incomplete contracts: fill the gaps with terms that are favorable to the party with the greater bargaining power. It argues that some of the more common gaps in contracts involve purely distributive issues, for which it is impossible to choose a unique, “most efficient” term. Rather, the term that mimics the bargain in these settings must be sensitive to the bargaining power of the parties. The article explores the justifications for such a bargain-mimicking principle, the ways it can be implemented by courts, and the subtle ways it is already in place.