Evidentiary Arbitrage: The Fabrication of Evidence and The Verifiability of Contract Performance

Chris Sanchirico and George Triantis
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George Triantis: University of Virginia School of Law

No uvalwps-1011, University of Virginia John M. Olin Program for Law & Economics Working Paper Series from University of Virginia School of Law

Abstract: Evidentiary Arbitrage: The Fabrication of Evidence and The Verifiability of Contract Performance - Contract theory identifies verifiability as a critical determinant of the incompleteness of contracts. Although verifiability refers to the cost of proving relevant facts to a court, very little scholarship connects explicitly the evidentiary process to the drafting of substantive contract terms. This paper begins to explore this relationship to provide a more rigorous explanation of contract design. In particular, the paper concerns the very core of verifiability ? truth-finding by a court ? and examines the impact of the prospect of evidence fabrication on contracting. It thereby also explores the puzzling tolerance of the adjudicatory system for fabrication and the incentives to fabricate created by thresholds in burdens of proof. The paper suggests that, despite undermining truth-finding, evidence fabrication may be harnessed by contracting parties to improve the (evidentiary) cost-efficiency of performance incentives in their relationship.

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