Private Law Theory

ABSTRACT
Contract law affects behavior not just directly, by ordering damages, but also indirectly, by providing information on how the parties to the dispute behaved. Information from litigation can then help third parties decide whether to do business with the disputants going forward. Contract law thus affects behavior by shaping reputations and facilitating market discipline. This Article examines contract law’s liability standards, defenses, and remedies doctrines from an information-production perspective, and generates the following three contributions.

First, the information-production perspective clarifies an efficiency-based justification for the stark divide between contract liability (strict liability) and tort liability (negligence). A negligence regime comes with higher administrative costs relative to strict liability, but also with the promise of more granular information on how the parties behaved. In torts, the informational benefits of negligence over strict liability are pronounced and often justify its higher administrative costs. In contracts, by contrast, strict liability often comes with distinct informational benefits of its own, producing information on parties’ tendency to overpromise. The Article spotlights the surprisingly common contractual contexts where strict liability produces more reputation-relevant information than negligence, as well as contractual contexts where the informational benefits of negligence are too marginal to justify its higher administrative costs …

Shapira, Roy and Jacob, Assaf M and Kaplan, Yotam, An Information-Production Theory of Contract Law (March 29, 2023), 109 Iowa Law Review 603 (2024); Bar Ilan University Faculty of Law Research Paper No 4394466.