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100 Geo. L.J. 5 (2011-2012)
Are All Contractual Obligations Created Equal

handle is hein.journals/glj100 and id is 7 raw text is: ARTICLES Are All Contractual Obligations Created Equal? YUVAL FELDMAN & DORON TEICHMAN* At the core of the economic analysis of contract law lies the concept of options. According to this concept, parties are expected to perform their contrac- tual duties if, and only if, the legal price of breach (that is, damages) is higher than the cost of performance. This Article challenges this concept and shows that people's performance decisions are driven by noninstrumental forces such as moral commitments, social norms, and motivated reasoning. To demonstrate this point, this Article presents a series of three experimental surveys that measure and compare participants' attitudes toward breaching a contract. Participants answered questions in the context of one of several variations of the same hypothetical scenario. While the expected cost of a breach was identical in every variation, they differed along several dimensions, such as the source of uncertainty regarding paying damages (uncertainty stemming from an ambiguous contract versus uncertainty stemming from lax enforcement) and the type of contract (negotiated contract versus standard-form contract). The re- sults confirmed our hypothesis and showed that performance decisions are affected by a diverse set of variables aside from the monetary incentives set by the legal system. Based on these findings, the Article revisits some of the basic questions of contract law and sheds new light on an array of policy issues. TABLE OF CONTENTS INTRODUCTION .......................................... 6 I. BACKGROUND ....................................... 9 A. THE ECONOMIC APPROACH TO CONTRACTUAL OBLIGATIONS ..... 9 B. A NONINSTRUMENTAL APPROACH TO CONTRACTUAL OBLIGATIONS . 10 1. M oral Obligation ............................. 11 * Senior Lecturer, Faculty of Law, Bar-Ilan University and the Joseph H. and Belle R. Braun Senior Lecturer in Law, Faculty of Law, the Hebrew University of Jerusalem. © 2011, Yuval Feldman & Doron Teichman. For helpful comments we thank Adam Badawi, Omri Ben-Shahar, Fernando Gomez, Daphna Levinson-Zamir, Shahar Lifshitz, Rob Mikos, Ariel Porat, Alexander Stremitzer, Stephan Tontrup, Tom Ulen, Tess Wilkinson-Ryan, Kip Viscusi, Eyal Zamir, and participants of workshops at Northwestern University, Vanderbilt University, the University of Illinois, at the annual meetings of the American and Spanish law and economics associations, and at the Fifth Annual Conference on Empirical Legal Studies. Financial support for this study was provided by the German-Israel Science Foundation. Finally, we are grateful to Tammy Shterental for her statistical consulting and to Or Elcon, Amir Falk, and Assaf Unger for their assistance.

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