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Prohibitions on Punishments in Private Contracts

Author

Listed:
  • Philip Bond

    (University of Pennsylvania)

  • Andrew F. Newman

    (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.

Suggested Citation

  • Philip Bond & Andrew F. Newman, 2006. "Prohibitions on Punishments in Private Contracts," Boston University - Department of Economics - Working Papers Series WP2006-060, Boston University - Department of Economics.
    • Handle: RePEc:bos:wpaper:wp2006-060
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    Cited by:

    1. Wickelgren, Abraham L., 2018. "A novel justification for legal restrictions on non-compete clauses," International Review of Law and Economics, Elsevier, vol. 54(C), pages 49-57.

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    More about this item

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • N2 - Economic History - - Financial Markets and Institutions
    • J83 - Labor and Demographic Economics - - Labor Standards - - - Workers' Rights

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