Individual actors want to make their promises enforceable in order to motivate mutually profitable investments. But parties cannot easily design contracts that maximize beneficial investments and also respond appropriately to changing conditions. Although economists have designed theoretical...

The central task in developing a plausible normative theory of contract law is to specify the appropriate role of the state in regulating incomplete or relational contracts. Complete contracts (to the extent that they exist in the real world) are rarely, if ever, breached since by definition the...

A bankruptcy system is believed necessary to solve a coordination problem among the creditors of a distressed firm. The firm should survive if its going concern value exceeds its liquidation value, but each creditor, who is assumed to hold debt that is small in relation to the total, has too...