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Enforcing Contracts: Should Courts Seek the Truth?

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  • Claude Fluet

Abstract

I examine the case where fulfillment of a contractual commitment is only imperfectly verifiable and ask whether the court should then tell the truth regarding the action in dispute. I show that truth seeking does not maximize the expected surplus from contractual relationships. From the parties' viewpoint, the enforcer should disregard some of the available information and should sometimes rule in favor of one party, even though his understanding is that the other party is most probably right. The analysis provides a justification for rules of evidence in common law and for the use by courts of neutral normative priors regarding contending claims.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 159 (2003)
Issue (Month): 1 (March)
Pages: 49-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200303)159:1_49:ecscst_2.0.tx_2-l

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References

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  1. Demougin, Dominique & Fluet, Claude, 2006. "Preponderance of evidence," European Economic Review, Elsevier, vol. 50(4), pages 963-976, May.
  2. Hylton, Keith N, 1990. "Costly Litigation and Legal Error under Negligence," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 6(2), pages 433-52, Fall.
  3. Lewis, T. & Poitevin, M., 1994. "Disclosure of Information in regulatory Proceedings," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9414, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. Polinsky, A Mitchell & Shavell, Steven, 1989. "Legal Error, Litigation, and the Incentive to Obey the Law," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 5(1), pages 99-108, Spring.
  5. Daughety, Andrew F & Reinganum, Jennifer F, 2000. "On the Economics of Trials: Adversarial Process, Evidence, and Equilibrium Bias," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 16(2), pages 365-94, October.
  6. Froeb, Luke M & Kobayashi, Bruce H, 1996. "Naive, Biased, Yet Bayesian: Can Juries Interpret Selectively Produced Evidence?," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 12(1), pages 257-76, April.
  7. Louis Kaplow & Steven Shavell, 1992. "Accuracy in the Determination of Liability," NBER Working Papers 4203, National Bureau of Economic Research, Inc.
  8. Paul Milgrom & John Roberts, 1986. "Relying on the Information of Interested Parties," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 18-32, Spring.
  9. Fluet, Claude, 1999. "Régulation des risques et insolvabilité : le rôle de la responsabilité pour faute en information imparfaite," L'Actualité Economique, Société Canadienne de Science Economique, Société Canadienne de Science Economique, vol. 75(1), pages 379-399, mars-juin.
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Cited by:
  1. Robert Cooter & Winand Emons, 2004. "Truth-Bonding and Other Truth-Revealing Mechanisms for Courts," European Journal of Law and Economics, Springer, vol. 17(3), pages 307-327, May.
  2. Dominique Demougin & Claude Fluet, 2004. "Deterrence vs Judicial Error: a Comparative View of Standards of Proof," Cahiers de recherche 0418, CIRPEE.
  3. Dominique Demougin & Claude Fluet, 2007. "Rules of Proof, Courts, and Incentives," CESifo Working Paper Series 2014, CESifo Group Munich.
  4. Fluet, Claude, 2010. "Liability rules under evidentiary uncertainty," International Review of Law and Economics, Elsevier, Elsevier, vol. 30(1), pages 1-9, March.
  5. Fares, M’hand, 2005. "Quels fondements à l’incomplétude des contrats?," L'Actualité Economique, Société Canadienne de Science Economique, Société Canadienne de Science Economique, vol. 81(3), pages 535-555, Septembre.

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