Volume 100 - Issue 1 Georgetown Law Journal

Are All Contractual Obligations Created Equal?

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 (that is, damages) is higher than the cost of performance. This Article challenges this concept and shows that people’s performance decisions are driven by noninstrumental 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 versus uncertainty stemming from lax enforcement) and the type of contract (negotiated contract versus 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.

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