Coase-Sandor Working Paper Series in Law and Economics

Publication Date

2006

Publication Title

Law & Economics Working Papers

Abstract

This paper shows that "one-sided" terms in standard contracts, which deny consumers a contractual benefit that seems efficient on average, may arise in competitive markets without informational problems (other than those of courts). A one-sided term might be an efficient response to situations in which courts cannot perfectly observe all the contingencies needed for an accurate implementation of a "balanced" contractual term when firms are more concerned about their reputation, and thus less inclined to behave opportunistically, than consumers are. We develop this explanation, discuss its positive and normative implications, and compare them to those of information-based explanations for one-sided terms. Key words: contracts, standard form contracts, contracts of adhesion, reputation, opportunism, observability. JLE classification: D8, K12.

Number

270

Included in

Law Commons

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