Coase-Sandor Working Paper Series in Law and Economics

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Most scholars believe that courts should enforce government contracts, though they disagree about the extent to which liability or damages rules should trade off relevant considerations – the problem of governments holding up contractors, on the one hand, and the problem of governments using contracts in order to defer costs to future governments, on the other hand. These scholars, however, overestimate the ability of courts to affect policy outcomes. Courts cannot increase the welfare of current or future generations by enforcing government contracts. The reason is that enforcing contracts can benefit future generations only by increasing the credibility of their governments, but if the current government has not already tried to benefit future generations by complying with contracts voluntarily, then it will offset the effect of an adverse judgment by withdrawing value from the future using a policy instrument over which courts have no control.



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