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http://ssrn.com/abstract=367172
 
 

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Bounded Rationality, Standard Form Contracts, and Unconscionability


Russell B. Korobkin


UCLA School of Law


University of Chicago Law Review, Vol. 70, p. 1203, 2003

Abstract:     
Economic theory suggests that, in most circumstances, market forces will ensure that stan-dard form contracts contain terms that are not only socially efficient but also beneficial to non-drafting parties as a class compared to other possible combinations of price and terms. This analy-sis in turn suggests that courts should enforce all form terms or, at a minimum, all form terms that non-drafting parties read and understand. Relying on social science research on decisionmaking, this Article argues that non-drafting parties (usually buyers) are boundedly rational decisionmak-ers who will normally price only a limited number of product attributes as part of their purchase decision. When contract terms are not among these attributes, drafting parties will have a market incentive to include terms in their standard forms that favor themselves, whether or not such terms are efficient. Thus, there is no a priori reason to assume form contract terms will be efficient. The Article then argues that the proper policy response to this conclusion is greater use of mandatory contract terms and judicial modification of the unconscionability doctrine to better respond to the primary cause of contractual inefficiency.

Number of Pages in PDF File: 94

Keywords: behavioral law and economics, contracts, unconscionability, bounded rationality

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Date posted: December 18, 2003  

Suggested Citation

Korobkin, Russell B., Bounded Rationality, Standard Form Contracts, and Unconscionability. University of Chicago Law Review, Vol. 70, p. 1203, 2003. Available at SSRN: http://ssrn.com/abstract=367172 or http://dx.doi.org/10.2139/ssrn.367172

Contact Information

Russell B. Korobkin (Contact Author)
UCLA School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-825-1994 (Phone)
310-206-7010 (Fax)
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