On the Stickiness of Default Rules

Abstract:     
This article examines the stickiness of default rules and boilerplate terms in contract law. It argues that parties who choose to deviate from well entrenched defaults may face hurdles beyond the direct transaction costs of drafting. The mere deviation from standard terms by a proposing party may in and of itself raise suspicions for counterparties. It may conjure concerns over hidden aspects of the deal and tricky motivations - a fear of the unknown. Thus, regardless of the direct value of a non-standard, tailored term, a deviance cost associated with its proposal may offset or even cancel its benefit. Under this account, default rules are stickier, and boilerplate terms less prone to innovation, than currently perceived. The article demonstrates the existence of such stickiness by identifying default rules that vary across jurisdictions. In the absence of high transaction costs (or significant network/learning effects), one would expect robust opt-out from an undesirable default in at least some jurisdictions; unimpeded parties should gravitate toward the efficient rule. The absence of such opt-out, in any jurisdiction, is consistent with this account of stickiness.

Number of Pages in PDF File: 33

JEL Classification: K40

Accepted Paper Series