Contract as Convention
27 Pages Posted: 16 Jan 2011 Last revised: 1 Feb 2011
Date Written: January 19, 2011
Contract theory is a curiously neglected field. While the efficiency of contract law rules has received much attention, the same cannot be said of the more basic question why contracts should be enforced. The reliance and autonomy explanations which contract theorists most frequently offer are moreover unpersuasive. Reliance theories would ground relief on detrimental reliance, and fail to explain why promisees should be given an incentive to rely. Autonomy theories misfire by failing to account for the conventional nature of promissory institutions, and do not explain why they ought to exist, as opposed to any number of other conventions (or games) one might imagine. In their place I propose a conventional explanation of contractual institutions that is derived from David Hume’s analysis of promising. Unlike Hume, however, I argue that promissory theories are incomplete without a principle of fidelity linking a promisor to the institution; and I offer a positional explanation for such a duty.
Keywords: Adam Smith, beneficial, breach, brute, circularity, commitment, communitarianism, credible, duties, economics, facts, fairness, institutional, intentions, John Searle, nonobservance, normative powers, ontology, psychic costs, Rawls, regularities, statements, Thomas Hobbes, trust, utilitarianism
JEL Classification: K12
Suggested Citation: Suggested Citation