Reconsidering Contractual Liability and the Incentive to Reveal Information

11 Pages Posted: 13 Jul 2000 Last revised: 16 Apr 2008

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Steven Shavell

Harvard Law School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 1999

Abstract

In an earlier work, we analyzed how the legal rules governing contractual liability affect the transfer of information between the parties to the contract. In particular, we showed how limitations on contractual liability might lead high valuation buyers to reveal their valuation of performance, and we identified the circumstances under which such limitations on liability are and are not socially desirable. In an article forthcoming in the Stanford Law Review, Barry Adler develops a critique of our analysis, as well as that of Ayres and Gertner, who independently argued that contractual rules can beneficially facilitate information transfers. We reconsider here the subject of contractual liability and the revelation of information and respond to Adler's critique. We find Adler's model to be a natural extension of ours rather than a departure from it. Our reexamination leads to the conclusion that the informational effects that our work analyzed are important to take into account in designing contract rules.

Suggested Citation

Bebchuk, Lucian A. and Shavell, Steven, Reconsidering Contractual Liability and the Incentive to Reveal Information (May 1999). NBER Working Paper No. w7106, Available at SSRN: https://ssrn.com/abstract=227335

Lucian A. Bebchuk (Contact Author)

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Steven Shavell

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