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Contracting in the Shadow of the Law

Event details of ACLE seminar: Bentley MacLeod (Columbia University)
Date 15 December 2008
Time 11:45 -13:15
Location
Oudemanhuispoort

Contracting in the Shadow of the Law

Abstract

Economic models of contract typically assume that courts enforce obligations based on 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.

Oudemanhuispoort

Oudemanhuispoort 4-6
1012 CN Amsterdam