Pre-Contractual Reliance

Lucian Bebchuk () and Omri Ben-Shahar

No 8235, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: During contractual negotiations, parties often make (reliance) expenditures that would increase the surplus should a contract be made. This paper analyzes decisions to invest in pre-contractual reliance under alternative legal regimes. Investments in reliance will be socially suboptimal in the absence of any pre-contractual liability -- and will be socially excessive under strict liability for all reliance expenditures. Given the results for these polar cases, we focus on exploring how 'intermediate' liability rules could be best designed to induce efficient reliance decisions. One of our results indicates that the case for liability is shown to be stronger when a party retracts from terms that it has proposed or from preliminary understandings reached by the parties. Our results have implications, which we discuss, for various contract doctrines and debates. Finally, we show that pre-contractual liability does not necessarily have an overall adverse effect on parties' decisions to enter into contractual negotiations.

JEL-codes: C78 D23 (search for similar items in EconPapers)
Date: 2001-04
Note: LE
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published as "Pre-Contractual Reliance" Journal of Legal Studies, Vol. 30, pp. 423-457, June 2001.

Downloads: (external link)
http://www.nber.org/papers/w8235.pdf (application/pdf)

Related works:
Working Paper: Pre-Contractual Reliance (1996)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:8235

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8235

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().