Are All Contractual Obligations Created Equal?

5th Annual Conference on Empirical Legal Studies Paper

The Georgetown Law Journal, Forthcoming

46 Pages Posted: 2 Jul 2010 Last revised: 25 Dec 2015

See all articles by Yuval Feldman

Yuval Feldman

Bar-Ilan University - Faculty of Law

Doron Teichman

Hebrew University of Jerusalem - Faculty of Law

Date Written: February 16, 2011

Abstract

At the core of the economic analysis of contract law lies the concept of options. According to this concept, parties are expected to perform their contractual duties if, and only if, the legal price of breach (i.e. damages) is higher than the cost of performance. This Article challenges this concept, and shows that peoples’ performance decisions are driven by non-instrumental forces such as moral commitments, social norms, and motivated reasoning. To demonstrate this point, this Article presents a series of three experimental surveys that measure and compare participants’ attitudes toward breaching a contract. Participants answered questions in the context of one of several variations of the same hypothetical scenario. While the expected cost of a breach was identical in every variation, they differed along several dimensions, such as the source of uncertainty regarding paying damages (uncertainty stemming from an ambiguous contract vs. uncertainty stemming from lax enforcement) and the type of contract (negotiated contract vs. standard form contract). The results confirmed our hypothesis and showed that performance decisions are affected by a diverse set of variables aside from the monetary incentives set by the legal system. Based on these findings, the Article revisits some of the basic questions of contract law and sheds new light on an array of policy issues.

Suggested Citation

Feldman, Yuval and Teichman, Doron, Are All Contractual Obligations Created Equal? (February 16, 2011). 5th Annual Conference on Empirical Legal Studies Paper , The Georgetown Law Journal, Forthcoming , Available at SSRN: https://ssrn.com/abstract=1633415

Yuval Feldman (Contact Author)

Bar-Ilan University - Faculty of Law ( email )

Faculty of Law
Ramat Gan, 52900
Israel

Doron Teichman

Hebrew University of Jerusalem - Faculty of Law ( email )

Mount Scopus
Mount Scopus, IL 91905
Israel

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