Economic Challenges for the Law of Contract

Abstract

This Essay introduces general equilibrium theory (GET) and mechanism design theory (MD) in a general sense (rather than in piece meal applications) to the study of contract law. As a positive matter, this introduction reveals three understudied areas: (i) when the equilibrium contract is individually rational but collectively irrational; (ii) the role of courts in market completion projects; and (iij) the implementation of renegotiation-proof mechanisms. As a normative matter, incorporating GET and MD insights into the study of contract law supports broad freedom of contract and formalist interpretative practices. Lastly, this Essay points to several areas for future research, highlighting the central role of law and economics analysis in identifying feasible mechanism design programs for contract law.