The Failure of Economic Interpretations of the Law of Contract Damages

Abstract

The law of contracts is complex but remarkably stable. What we lack is a widely accepted interpretation of that law as embodying a coherent set of normative choices. Some scholars have suggested that either economic efficiency or personal autonomy provide unifying principles of contract law. These two approaches, however, seem incommensurable, which suggests that we must reject at least one of them in order to have a coherent theory. This article dissents from this view and has a simple thesis: Economic accounts of the current doctrine governing contract damages have failed, but efficiency arguments remain key to any adequate theory of contract law. Contractual liability - like virtually all civil liability - is structured around the concept of bilateralism, meaning that damages are always paid by defeated defendants to victorious plaintiffs. Ultimately, economic accounts of this basic feature are unpersuasive. This criticism, however, leaves untouched many of the key economic insights into the doctrine of contract damages. The limited failure of economic interpretations points toward a principled accommodation of both autonomy and efficiency in a single vision of contract law where notions of autonomy provide the basic structure and economics fills in most of the doctrinal detail.

Keywords: contracts law & economics philosophy, jurisprudence, damages, remedies