New York University - Stern School of Business, Berkley Center for Entrepreneurial Studies; Leonard N. Stern School of Business - Department of Economics
University of Pennsylvania - Operations & Information Management Department; Paul Dubrule Professor of Sustainable Development & Distinguished Research Professor at INSEAD
Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)
Date Written: November 1, 2007
Abstract
Economists have long recognized that certainty of contract is essential to a healthy economy. Long-term forward contracts, in particular, help reduce financial risk. Those contracts can only accomplish that goal, however, if parties know the contracts will be enforced.
From an economic and policy standpoint, long-term energy contracts should be abrogated only in truly exceptional circumstances. The mere fact that a price seems too high in retrospect does not justify abrogating contracts voluntarily agreed to by sophisticated buyers and sellers. Nor do generalized claims of - market dysfunction - at the time the contract was formed.
Baumol, William J. and Blaydon, Colin and Cicchetti, Charles J. and Stulz, Rene M. and Dubin, Jeffrey A and Fisher, Franklin M. and Hahn, Robert W. and Hausman, Jerry A. and Hogan, William W. and Kalt, Joseph P. and Kleindorfer, Paul R. and Michaels, Robert J. and Owen, Bruce M. and Pirrong, Craig and Salinger, Michael A. and Shavell, Steven and Smith, Vernon L. and Sweeney, James L. and Willig, Robert D. and Wolfram, Catherine, Supreme Court Amicus Brief Regarding Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County, Washington (November 1, 2007). AEI-Brookings Joint Center Brief No. 07-02, Available at SSRN: https://ssrn.com/abstract=1034200 or http://dx.doi.org/10.2139/ssrn.1034200