The Meaning of Contractual Silence: A Field Experiment

Abstract:     
The limited capacity of lawmakers to intuit the unstated wishes of contracting parties constitutes a daunting obstacle to the formulation of majoritarian default rules. This paper presents a field experiment that prices consumers’ unstated understandings of contractual silence regarding warranty and return policies for a good. Used iPods were sold via auction on eBay.com with randomly varying return policies. Some iPods came with a satisfaction guaranteed policy, others with an explicit warranty that resembled the default warranty of merchantability, and still other iPods were sold “as is.” Finally, a batch of iPods was silent regarding the return policy. Although the estimates are extremely imprecise, consumers appear to pay approximately the same price for iPods with silence regarding the return policy as they do for iPods with the explicit warranty that resembles the UCC default warranty. Silent iPods sell for less than iPods that are satisfaction guaranteed, and considerably more than iPods sold “as is” – though again a lack of precision precludes confident inferences. Consumers interpret silence in accord with silence’s legal meaning; the UCC framer’s “guess” about majoritarian warranty expectations is an empirically reasonable one.

Number of Pages in PDF File: 27

Keywords: contract law, default rules, warranties, UCC, field experiment

JEL Classification: K12, L14

Accepted Paper Series