22 January 2015

Developments in Contract Theory

Many folks might be surprised that there such a thing as contract theory. After all, aren't contracts a "natural kind" with no need for theory to explain or understand them? And even if I refine the question to observe that by "contract theory" I mean a theory of contract law and not the social practice of contracting, I might be met with similar incredulity: Why do we need a theory of law, isn't the law good enough?

Theory serves several purposes, one of which is to support or--in what follows--undercut the law. (For more about the uses of theory in contract law read my long-ago piece, Mission Possible: A Paradigm for Analysis of Contractual Impossibility (download here).) In any event, over a year ago Omri Ben-Shahar wrote a book, More Than You Wanted to Know: The Failure of Mandated Disclosure. Much has been written about Ben-Shahar's conclusions, that more and more disclosure about the terms of a contract doesn't improve decision-making. In other words, every time a federal or state regulator makes a vendor of goods or an online provider disclose more about the bad deal you're getting, precisely nothing changes.

But this post isn't about Ben-Shahar's book, Instead, it's about an article by Robin Bradley Kar, The Emerging New Life of Contract Law Studies (download here). I have found Kar's work to uniformly helpful in my own understanding of the uses and limits of contract theory. (See my Principled Pluralism and Contract Remedies (download here) for an example.) I have previously blogged about Kar's work here and here.

In The Emerging New Life, Kar observes that the leading form of contemporary contract theory--law and economics (the application of neo-classical economic theory to law)--is getting very long in the tooth. Nonetheless, it's also the case that nothing has come along to supplant the dominance of law and economics as the principle tool by which to evaluate the law. Other contenders in the field of contract theory, autonomy and virtue, have their adherents but neither comes close to articulating a widely accepted approach to theorizing about the law.

Kar is not alone in his observations about the limits of law and economics. For what it's worth, I've made some of the same complaints myself. (See my Consideration in the Common Law of Contracts: A Biblical-Theological Critique (download here) for my thoughts on the topic.) What Kar does, however, is more an attack from below. In other words, rather than criticizing the law and economics paradigm from a normative perspective, he uses Ben-Shahar's book as an example of the methodological shortcomings of law and economics.

With his background in moral philosophy and psychology, Kar is well-positioned to skewer the unsubstantiated (and generally subterranean) presuppositions of law and economics legal scholars. It's sometimes the case that Ph.D.'s don't bring much of use to the table of legal theory but that's not the case with Kar. He painstakingly distills the assumptions about human nature and simple-minded beliefs about human behavior of those who reduce human intentionality to that of rats and frogs. He then rebuilds a far "thicker" notion of human nature behavior which, while not quite complete, is far richer than what passes as philosophical anthropology in legal literature.

I won't summarize the details of Kar's arguments here but will strongly encourage those interested in contract theory to read his piece.

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