Victor P. Goldberg

Readings in the Economics of Contract Law

Economic analysis is being applied by scholars to an increasing range of legal problems. This collection brings together some of the main contributions to an important area of this work, the economics of contract law. The essays and illuminating notes, questions, and introductions provided by the editor outline the Law and Economics framework for analyzing contractual relationships. The first two parts of the book present a number of useful concepts - adverse selection, moral hazard, and rent seeking - and a general way of thinking about the economics of contracting and contract law. The remainder of the book considers a wide range of topics and issues. The recurring theme is that contracting parties want to assign the responsibility for adjusting to particular contingencies to the party best able to control the costs of adjustment. The adjustment problem is exacerbated by the fact that the parties might engage in various types of strategic behavior, such as opportunism, moral hazard, and rent-seeking. Many contract law doctrines can best be understood as attempts to replicate how reasonable parties might resolve this adjustment problem.

On Positive Theories of Redistribution

In recent years there have been numerous attempts, both theoretical and empirical, to explain redistribution. One line or argument, stemming from the seminal article of Harold Hochman and James Rodgers [1969], has concentrated on explaining the extent of charitable transfers, public and private. A second line has focused on the efforts by individuals to use the governmental apparatus and the consequences of these efforts. The concern in this article will be with the second line of argument. Since an increasing amount of research is now being channeled into redistribution issues, it is useful to pause and reflect on the conceptual complexity involved in theorizing about redistribution and marshaling evidence for those theories. The basic hypothesis of these positive redistribution theories is that people will use their stock of resources (including the voting franchise) to influence the government, and as a result of that influence certain redistributional outcomes will be observed. There are two basic variants

Fishing and Selling

CONSUMERS are a lot like fish, out there waiting to be hooked. Like most images, this one is a caricature of reality. The choice and search effort of consumers is suppressed in order to explore the implications of selling activity by manufacturers and retailers. In particular, the fishing analogy suggests that there is a tendency toward excessive selling activity if sellers do not take into account the effects of their activity on the costs of their rivals. However, sellers, like fishermen, have an incentive to arrange their affairs to mitigate the dissipation of rents. This argument is developed in Section I. The conclusion that sellers might overspend on selling activity appears inconsistent with the observation that increased advertising frequently results in lower consumer prices; however, it is not. The apparent paradox is resolved in Section II. In Section III, some speculations on the relationship between marketing and the destruction of social capital are put forth.

A Reexamination of 'Glanzer v. Shepard': Surveyors on the Tort-Contract Boundary

In international commodity transactions, intermediary certifiers of quantity and quality play a crucial role. Sometimes they err, and when they do, the aggrieved party can pursue remedies against the counterparty or against the intermediary, either in contract or tort. The remedy against the intermediary has depended, at least in part, on whether the plaintiff was in privity. Even absent privity, the aggrieved party could possibly recover in tort (or perhaps as a third-party beneficiary). So held Cardozo in the leading New York case Glanzer v. Shepard. Section I of this paper reviews the Glanzer litigation, with special emphasis on how the court suppressed many of the significant facts. Section II then turns to restitution by the principals. Section III explores the courts’ general hostility to intermediaries’ attempts to limit their liability by contract, and Section IV considers the judiciary’s sporadic efforts to place extra-contractual limits on intermediaries’ liability. Section V examines the surveyors’ response.

The Coase Theorem and Some Puzzles on the Tort/Contract Boundary

When one party’s behavior injures another, the law will determine who bears the financial consequences of the injury. Or, more precisely, if the parties are willing and able to pursue legal remedies, the legal rules will influence the final outcomes. In the third of a century since the appearance of “The Problem of Social Cost” much has been written on the efficiency properties of tort remedies. On occasion these speculations are confronted with a reality check. In this paper I want to focus on two such instances. In the first instance, parties contract around a tort rule which appears efficient. In the second, parties fail to contract around a tort rule which appears inefficient. In both instances I will sketch out some arguments which might reconcile these observations.