Learning in Standard Form Contracts: Theory and Evidence

66 Pages Posted: 3 Mar 2018 Last revised: 28 Sep 2018

See all articles by Giuseppe Dari‐Mattiacci

Giuseppe Dari‐Mattiacci

University of Amsterdam; Tinbergen Institute

Florencia Marotta-Wurgler

New York University School of Law

Date Written: March 3, 2018

Abstract

We explore learning and change in standard form contracts. We hypothesize that drafters (sellers) are more likely to revise the terms they offer when they have an opportunity to learn about their value. These opportunities arise only for those types of terms that allow drafters to experience the relative costs and benefits of offering them. Consider a warranty. Sellers offering a warranty in an initial period will be exposed to claims about malfunction by purchasers and will learn whether it is desirable to offer it going forward. When drafters are unable to learn, either because they fail to offer such learning-enabling terms initially, or because the term in question is one where there is no increased opportunity to learn, we expect that such terms will be revised less frequently. Indeed, a reduced opportunity to learn might create contractual “black holes,” where terms that are less likely to be revised might lose their meaning over time or appear less related to the rest of the contract. Our results support this hypothesis. Using a large sample of changes in consumer standard form contracts over a period of seven years, we find that sellers are more likely to revise terms that offer an opportunity to learn than those that do not. The results suggest that standard form contract terms evolve over time as sellers learn about their benefits, costs, and risks. Our results have normative implications for the design of default rules.

Keywords: Standard Form Contract, Boilerplate, Evolution of Contracts, Learning, Innovation

JEL Classification: K12

Suggested Citation

Dari-Mattiacci, Giuseppe and Marotta-Wurgler, Florencia, Learning in Standard Form Contracts: Theory and Evidence (March 3, 2018). NYU Law and Economics Research Paper No. 18-11, Columbia Law and Economics Working Paper No. 593, Available at SSRN: https://ssrn.com/abstract=3133791 or http://dx.doi.org/10.2139/ssrn.3133791

Giuseppe Dari-Mattiacci

University of Amsterdam ( email )

Postbus 15654
1001 ND
Amsterdam, Noord-Holland 1001 ND
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Florencia Marotta-Wurgler (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

HOME PAGE: http://its.law.nyu.edu/facultyprofiles/profile.cfm?personID=27875

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