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Contracting in the Shadow of the Law

Detail Summary
Date 15 December 2008
Time 11:45 - 13:15
Location Oudemanhuispoort

Contracting in the Shadow of the Law


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.

paper macleod

Oudemanhuispoort 4-6
1012 CN Amsterdam