Parallel Contract

Abstract:     
This Article identifies a pervasive model of contracting that is inadequately treated in existing law and theory. In parallel contract, one party enters into a series of contracts with many similarly situated individuals on background terms that are presumptively identical. In these settings, the transaction costs associated with negotiating or even unilaterally tailoring terms to individuals exceed the benefit from such tailoring. Instead, the repeat party sets uniform background terms based on facts pertaining to its contracting partners as a group, including the mean and distribution of their preferences.

Parallel contracts depart from the classical model of contract in two fundamental ways. First, obligations are not robustly dyadic in that they are neither tailored to the two parties to a given agreement nor understood by those parties by way of communications with each other. Second, obligations are not fixed at a discrete moment of contract. Parallel contracts should be interpreted differently than agreements more consistent with the classic model; in particular, the obligations of the repeat party should be understood by reference to its most recent practices and communications with any of the other parties in a given setting.

Number of Pages in PDF File: 38

Keywords: Contracts, contract theory, default rules, contract interpretation, employment contracts, implied contract, standard form contracts, contracts of adhesion, relational contract, bilateralism, incomplete contract

working papers series