Prohibitions on Punishments in Private Contracts

Philip Bond () and Andrew Newman
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Philip Bond: University of Pennsylvania

No WP2006-060, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: In most contemporary economies loan contracts cannot mandate imprison- ment or other non-pecuniary punishments for defaulting debtors. A possible rationale for contracting restrictions of this type is that imprisonment imposes negative externalities on individuals not party to the original loan contract. We explore the ability of such externalities to account for the legal restriction that private contracts cannot threaten non-pecuniary punishments. We consider both the “classical” case in which the negative externality is imposed on future trading partners, and the “behavioral” case in which the negative externality is imposed on an agent’s future self.

Pages: 35 pages
Date: 2006-11
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Related works:
Journal Article: Prohibitions on punishments in private contracts (2009)
Working Paper: Prohibitions on Punishments in Private Contracts (2004)
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