Contracts with Consent: A Contextual Critique of the No-Retraction Liability Regime

Abstract:     
This is a reply to Omri Ben-Shahar's Contracts with Consent, forthcoming in the Pennsylvania Law Review, and will be published along with his essay in that journal. The reply makes two main points. First, it argues that Omri's no-retraction liability regime will impose substantial costs, largely because of the frequency with which parties will have non-opportunistic reasons for retracting contract proposals that their negotiating partners have not yet accepted. Second, it argues that these costs will be substantial even though Ben-Shahar presents his proposal as a default rule. First, his rule vitiates the information-forcing benefits of the current default rule. Second, the stickiness of any default rule means that inefficiencies in the rule will not be solved by the ability of parties to opt out of the rule. Ben-Shahar's rule is likely to be especially sticky, because it applies by definition in a context in which the parties will NOT previously have signed a formal contract.

Keywords: contracts, reliance damages, expectation damages, default rules

JEL Classifications: K12

Accepted Paper Series