Economic Methods for Lawyers

Economic Methods for Lawyers

Emanuel Towfigh and Niels Petersen

Responding to the growing importance of economic reasoning in legal scholarship, this innovative work provides an essential introduction to the economic tools, which can usefully be employed in legal reasoning. It is geared specifically towards those without a great deal of exposure to economic thinking and provides law students, legal scholars and practitioners with a practical toolbox to shape their writing, understanding and case preparation.

Chapter 5: Contract theory and the economics of contract law

Klaus Ulrich Schmolke

Subjects: economics and finance, law and economics, law - academic, law and economics


In economics, contract theory deals with questions of how economic actors – as maximizers of their own utility – behave in certain contractual arrangements, and the implications of such behavior in terms of efficiency. Put differently and in more normative terms, contract economics is interested in constructing efficient contract designs given the incentives of the parties. Due to imperfect information and other causes, the parties are sometimes not able to reach the optimal solution, that is, the contract maximizing their joint utility, on their own. Then the question arises whether contract law can help to mitigate the ensuing welfare loss.

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