One-Sided Contracts in Competitive Consumer Markets
Lucian A. Bebchuk
Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
Richard A. Posner
University of Chicago Law School; National Bureau of Economic Research (NBER)
Michigan Law Review, Vol. 104, pp. 827-836, 2006
Harvard Law and Economics Discussion Paper No. 534
This paper shows that "one-sided" terms in standard contracts, which deny consumers a contractual benefit that seems efficient on average, may arise in competitive markets without informational problems (other than those of courts). A one-sided term might be an efficient response to situations in which courts cannot perfectly observe all the contingencies needed for an accurate implementation of a "balanced" contractual term when firms are more concerned about their reputation, and thus less inclined to behave opportunistically, than consumers are. We develop this explanation, discuss its positive and normative implications, and compare them to those of information-based explanations for one-sided terms.
Number of Pages in PDF File: 13
Keywords: contracts, standard form contracts, contracts of adhesion, reputation, opportunism, observability
JEL Classification: D8, K12
Date posted: November 10, 2005 ; Last revised: April 29, 2009
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