Working Paper No. 11-03:
Contract as Convention
Date Posted: January 2011
Abstract (below) | Full text (most recent) on SSRN
Contract theory is a curiously neglected field. While the efficiency of contract law rules has received much attention, the same cannot be said of the more basic question why contracts should be enforced. The reliance and autonomy explanations which contract theorists most frequently offer are moreover unpersuasive. Reliance theories would ground relief on detrimental reliance, and fail to explain why promisees should be given an incentive to rely. Autonomy theories misfire by failing to account for the conventional nature of promissory institutions, and do not explain why they ought to exist, as opposed to any number of other conventions (or games) one might imagine. In their place I propose a conventional explanation of contractual institutions that is derived from David Hume’s analysis of promising. Unlike Hume, however, I argue that promissory theories are incomplete without a principle of fidelity linking a promisor to the institution; and I offer a positional explanation for such a duty.