Bounded Rationality, the Doctrine of Impracticability, and the Governance of Relational Contracts

Abstract:     
This article uses a behavioral economics approach to analyze the effects of the doctrine of impracticability on "relational" contracts - long-term contractual agreements that are typically adapted to changed circumstances and unforeseen contingencies as they arise. In contrast to conventional law and economics studies, the article concludes that the impracticability doctrine has the potential to improve the efficiency and productivity of a wide range of long-term contractual agreements, and offers normative guidelines as to how the doctrine should be applied. The article also examines and rejects various philosophical objections to the impracticability doctrine, such as the arguments that it interferes with principles of economic liberty and voluntary exchange, that it interferes with the internal ethics of relational agreements, and that it clashes with principles of moral desert.

Number of Pages in PDF File: 89

Accepted Paper Series