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Contracts as Bilateral Commitments: A New Perspective on Contract Modification

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  • Jolls, Christine

Abstract

Contracts have traditionally been regarded as means of individual commitment. This article offers a broader vision, viewing contracts as potential means of bilateral commitment as well. Drawing on a burgeoning literature in economics, this article explains that commitment to stick with an original contract, even if both parties later want to modify that contract, may improve contractors' welfare. It provides examples from contracts cases of situations in which such bilateral commitment may be beneficial, and it suggests ways in which contract law might better facilitate such commitment. The primary suggestion for facilitating bilateral commitment is that parties-at least sophisticated ones-be permitted to enter into nonmodifiable contracts, which they cannot do under existing law. Permitting parties to write nonmodifiable contracts would enhance contractors' welfare in the settings examined in this article and would not interfere with other normative goals of contract law. Copyright 1997 by the University of Chicago.

Suggested Citation

  • Jolls, Christine, 1997. "Contracts as Bilateral Commitments: A New Perspective on Contract Modification," The Journal of Legal Studies, University of Chicago Press, vol. 26(1), pages 203-237, January.
    • Handle: RePEc:ucp:jlstud:v:26:y:1997:i:1:p:203-37
    DOI: 10.1086/467993
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    Cited by:

    1. B. Boockmann & Paul Thurner, 2006. "Flexibility provisions in multilateral environmental treaties," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 6(2), pages 113-135, June.
    2. Oliver Hart & John Moore, 2004. "Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In," Edinburgh School of Economics Discussion Paper Series 109, Edinburgh School of Economics, University of Edinburgh.
    3. Athias, Laure & Saussier, Stéphane, 2007. "Contractual flexibility or rigidity for public private partnerships? Theory and evidence from infrastructure concession contracts," MPRA Paper 10541, University Library of Munich, Germany.
    4. Matthew Ellman, 2006. "Specificity Revisited: The Role of Cross-Investments," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(1), pages 234-257, April.
    5. Alan Schwartz & Joel Watson, 2000. "Economic and Legal Aspects of Costly Recontracting," Yale School of Management Working Papers ysm143, Yale School of Management, revised 01 Jan 2001.
    6. Evelyn Korn & Stephan Meisenzahl, 2009. "Contracting still matters! Or: How to design a letter of intent," MAGKS Papers on Economics 200909, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    7. Miceli, Thomas J., 2002. ""Over a barrel": contract modification, reliance, and bankruptcy," International Review of Law and Economics, Elsevier, vol. 22(1), pages 41-51, July.
    8. Grosskopf Ofer & Medina Barak, 2007. "Rationalizing Drennan: On Irrevocable Offers, Bid Shopping and Binding Range," Review of Law & Economics, De Gruyter, vol. 3(2), pages 321-361, August.
    9. Steven Shavell, 2005. "Contracts, Holdup, and Legal Intervention," NBER Working Papers 11284, National Bureau of Economic Research, Inc.
    10. Chaserant, Camille, 2007. "Les fondements incomplets de l’incomplétude : Une revue critique de la théorie des contrats incomplets," L'Actualité Economique, Société Canadienne de Science Economique, vol. 83(2), pages 227-253, juin.
    11. Ian Smith, 2003. "The Law and Economics of Marriage Contracts," Journal of Economic Surveys, Wiley Blackwell, vol. 17(2), pages 201-226, April.
    12. Alan Schwartz & Joel Watson, "undated". "The Law and Economics of Costly Contracting," Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series yale_lepp-1004, Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy.
    13. Patrick W. Schmitz, 2005. "Should Contractual Clauses that Forbid Renegotiation Always be Enforced?," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 21(2), pages 315-329, October.
    14. Simon Schropp, 2007. "Revisiting the "Compliance-vs.-Rebalancing" Debate in WTO Scholarship a Unified Research Agenda," IHEID Working Papers 29-2007, Economics Section, The Graduate Institute of International Studies, revised Dec 2007.
    15. Oliver Hart & John Moore, 2008. "Contracts as Reference Points," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 1-48.
    16. Christine Jolls, 2007. "Behavioral Law and Economics," NBER Working Papers 12879, National Bureau of Economic Research, Inc.
    17. Alan Schwartz, 2004. "The Law and Economics of Costly Contracting," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(1), pages 2-31, April.
    18. Fares, M’hand, 2005. "Quels fondements à l’incomplétude des contrats?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(3), pages 535-555, Septembre.
    19. Oren Bar-Gill & Omri Ben-Shahar, 2004. "The Law of Duress and the Economics of Credible Threats," The Journal of Legal Studies, University of Chicago Press, vol. 33(2), pages 391-430, June.
    20. Renaud Bellais & Martial Foucault & Jean-Michel Oudot, 2014. "Économie de la défense," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01052607, HAL.
    21. Steven Shavell, 2003. "Economic Analysis of Contract Law," NBER Working Papers 9696, National Bureau of Economic Research, Inc.

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