Symposium- Incomplete Contracts: Judicial Responses, Transaction Planning, and Litigation Strategies - Introduction (original) (raw)

2005, Case Western Reserve law review

discussing hypothetical consent as basis of bargain). 4 Scott & Triantis, supra note 1, at 187 ("[E]conomic contract theory should incorporate a more textured understanding of the process for judicial enforcement of contracts."); see also Craswell, supra note 1, at 151 ("While that literature has had a good deal to say about some decisions that contracting parties must make[,] ... it has had little or nothing to say about other decisions, including decisions about precautions that might reduce the likelihood of an accidental breach."); Katz, supra note 1, at 171 ("[l]n the language of law-and-economics, scholars should pay greater attention to considerations of private transactional efficiency as opposed to larger issues of social efficiency."). 5 Scott & Triantis, supra note 1, at 191 ("In contract theory, incompleteness is due to the fact that information is costly and sometimes unavailable to (a) the parties at the time of contracting or (b) the parties or the enforcing court at the time of enforcement."); see also Craswell, supra note 1, at 155 (focusing on the problem of setting rules with the "limitations [that] (a) courts are imperfect decision-makers and (b) parties can always renegotiate their contracts"); Katz, supra note 1, at 171 (stressing that "the parties have more information than the courts"). 6 The authors discuss the conflict between enforcing contracts to promote the security needed to foster investment and the conflicting need to promote efficiency ex post. Katz, supra note 1, at 171-72; Scott & Triantis, supra note 1, at 189. Protection of the investment might call for enforcement even when circumstances have changed so that enforcement would no longer be efficient. I Craswell, supra note 1, at 152, 155 (distinguishing the "newer 'incomplete contracts' literature" from the traditional law-and-economics analysis of contracts); Katz, supra note 1 at 173-74 (discussing the theory of "strategic renegotiation design" and the problem of "unverifiable information, or unverifiability"); Scott & Triantis, supra note 1, at 188, 192 (stating that "[a]n important concern of contract theory is the renegotiation of agreements"). 8 Scott & Triantis, supra note 1, at 191 (classifying these scholarly solutions as part of the mechanism design literature). 9 Craswell, supra note 1, at 167 (outlining the search for contracting parties as one avenue for incomplete contracting literature to pursue); Scott & Triantis, supra note 1, at 198-200 (urging scholars to investigate different choices that parties might make in the process of litigation (whether to arbitrate or settle) and how the anticipation of such choices might affect earlier choices that parties make both in crafting their initial contracts and in acting efficiently during performance of the contract). 10 Scott & Triantis, supra note 1, at 195-96. 1Id. In addition to high costs, there may be problems of judicial errors. 12 Id. 13 Id. at 196. For example, one can reduce the ex ante drafting costs by leaving certain matters for courts to decide later on, adding to back-end enforcement costs. Id. at 196-97. The overall costs may be lower under such a strategy since at the actual time of enforcement, "information may yet be superior to (less costly than) that of the parties at the time they contract." Id. at 197. '4 Katz, supra note 1, at 174-75. "5 Id. at 170-71. 16 Id. 2005] 69 Scott & Triantis, supra note 1, at 187. 70 Id. 71 Id. at 189. 72 Id. 73 Id. 74 Id. at 191 (discussing Eric Maskin's solutions to the problem). 75 Id. at 192. 76 Id. (explaining that "[o]ption contracts and other similar implementation mechanisms ... are parameter-specific").