Article by George S. Geis
This Article uses empirical data and analytical modeling to explore this problem of default rule precision. I will not presume to offer a comprehensive theory, but the experiment should help to define the contours of the problem a bit more clearly. Empirical work is perfectly suited for gnawing at the corners of a tough problem, and hopefully this Article will make a little headway on the trade-offs between simple and complex default rules in contract law.
The main claim of this Article is that simple default rules often do seem better than complex ones—at least for the markets and rules used in this experiment. I am unable to draw more definitive conclusions because the work relies, at least in part, on assumptions for some of the variables. Overall, there are reasons to believe that contract law should usually prefer simple default rules and leave more detailed adjustments of these rules to the contracting parties.
I have organized the discussion as follows. Part II presents the problem of default rule precision in contract law, illustrated with analogies and examples from current doctrine. Part III develops an economic model of default rule precision using the Hadley rule on consequential damages—the classic testing ground for contract default rule theory. I then use this model to conduct several experiments on optimal default rule precision, drawing on empirical data from the field of marketing. Part III also discusses and tests the results, suggests some broader implications, and proposes additional research. Finally, a brief conclusion in Part IV sums up the findings.
About the Author
George S. Geis. Assistant Professor of Law, University of Alabama School of Law. J.D. 1998, University of Chicago Law School; M.B.A. 1998, University of Chicago; B.S. 1992, University of California at Berkeley.
Citation
80 Tul. L. Rev. 1109 (2006)