ABSTRACT
Legal sanctions, reputation costs, economic incentives, and social norms play a pivotal role in influencing behavior within contractual relationships. However, there are instances when individuals disregard breaches, even when doing so runs counter to their economic interests, and do not fulfill their contractual commitments or legal obligations. This article sheds light on a frequently overlooked motivator behind such behavior-contractual empathy. It examines the capacity of contracts to elicit empathy towards a struggling party who cannot fulfill their contractual obligations. It argues that in such cases, empathy can reduce litigation costs, facilitate cooperation and renegotiation, promote efficient and fair loss-sharing between parties, and, more generally, increase social capital. However, empathy also has its drawbacks, including fostering inefficient behavior in some cases, transferring wealth from empathetic to non-empathetic individuals, and reducing individuals’ well-being by eliciting painful emotions. The experimental studies presented here provide initial insight into the extent to which empathy affects behavior when one party is expected to breach a contract. These findings also highlight factors that moderate people’s willingness to disregard a breach. These factors include whether the promisor is an individual or a company and whether the contract has been formally and legally negotiated. The article concludes by discussing the legal implications of acknowledging empathy as a motivating factor in contractual settings.
Katz, Ori and Feldman, Yuval, The Promise and Perils of Empathy in Contracts: Theoretical and Empirical Analysis (September 8, 2024).
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