Promises and Prices
Craswell, Richard, Suffolk University Law Review
I. PRICES IN THE ABSTRACT A. When Prices are Likely to Rise B. Evaluating Price Effects II. PRICES AND SPECIFIC INDIVIDUALS A. Punitive Damages (Amitabh) B. Non-Pecuniary Losses (Ira and George) C. Mitigation of Damages (Theresa) D. Consequential Damages (Rick) E. Sale to Another Buyer (Bithiah) III. PRICES IN NON-ECONOMIC ANALYSES IV. HOW PRICES GET DISMISSED A. Impermissible Choices B. Default Rules 1. Choosing a Default Rule 2. Default Rules in Economic Analysis C. Tacit Understandings D. Deductive Logic 1. Buyers Who Don't Want to Speculate 2. Remedies and Universalizability E. The Entailments of a Promise F. The Scope of Contract Law G. Impermissible Rationales 1. What Transparency Requires 2. Default Rules and Transparency H. Cultural Effects V. CONCLUSION
What sanctions should the law inflict on those who break their contracts? Would it matter if more severe sanctions were likely to cause prices to rise? What if most contracting parties prefer higher sanctions and higher prices, or what if they prefer lower sanctions and lower prices? And whatever the answer to these questions might be, why do economists and philosophers think about these issues so differently?
Of course, when I speak of "economists" I mean something closer to "most economists, though not necessarily all of them; and including the many lawyers (like me) who do not have advanced degrees but who use economics in their scholarship." An analogous but even broader qualification should be presumed whenever I speak of "philosophers." Indeed, on the issues I discuss here, many philosophers of a utilitarian or welfarist persuasion will be closer in spirit to my "economists" than they will be to other professional philosophers. So, too, will contractualist philosophers such as T.M. Scanlon. (1)
However the two groups are defined, though, they bring very different perspectives to issues of contract theory. In particular, the two groups differ markedly in the relevance they assign to the effects that contract law can have on prices. In this essay, I try to illuminate these differences in two respects.
First, rather than analyzing prices in entirely theoretical terms (as economists typically do), Section II discusses five concrete examples in which named individuals have particular reasons for caring about prices. This puts economics and philosophy on something closer to an even footing, since many analyses in philosophy similarly focus on the interests of individual parties.
Second, Sections III and IV look more closely at various philosophers' analyses of contract law, to see exactly where the parties' reasons for caring about prices drops out of the analysis. This is not as easy as it might sound, for very few authors argue explicitly that prices shouldn't matter. Instead, when non-economists exclude prices from their analysis, they often do so merely by omission, or by adopting premises whose consequences are not immediately obvious--these are the steps that Sections III and IV seek to illuminate. In doing so, I focus especially on recent work by Seana Shiffrin, for she is one of the few philosophers to discuss price effects at any length. (2) But Sections III and IV also examine the work of other non-economists to show the variety of ways in which prices can end up being excluded.
Before proceeding, I must acknowledge my debt to Charles Fried's Contract as Promise (3) While I disagree with some aspects of that book, (4) I have also learned a great deal from it, as well as from the legacy that (thirty years later) is now apparent. During the 1980s, just as I was beginning my own academic career, Contract as Promise sparked a remarkable interest among legal scholars in questions about the morality of promises (e.g., why are promises binding?), and also in questions about the relation between morality and law (to what extent do the moral aspects of promises limit the rules that contract law may legitimately adopt? …