Power Imbalances in Contracts: An Interdisciplinary Study on Effects of Intervention

Abstract

This paper offers an interdisciplinary study on effects of intervention in two interacting parties facing a power imbalance. The main purpose of this paper is twofold. First, I present a systematic framework for evaluation, by using input from social psychological studies on power. Second, I give an overview of knowledge on and experience with the effects of intervention. It appears that surprisingly little is known about the effects of intervention, while on the other hand, more seems to be known about the sources and effects of power in relationships in general. This knowledge is used to distinguish three archetypes of power imbalances in contracts: 1) mental and/or physical predominance, 2) information asymmetry, and 3) dependency asymmetry. Law systems offer contracting parties in these cases two types of intervention: outcome-based and process-based intervention. Which of these two categories of intervention (or which mixture of the two) offers the best assistance to contracting parties facing power imbalances? There is not enough empirical evidence to answer this question yet. However, there are some signals that point into a certain direction. Mental and/or physical predominance cases seem better dealt with by outcome-based intervention, while dependency asymmetry cases seem better dealt with by process-based intervention. Information asymmetry is a matter of finding the mixture of the two that best enables a low-power party to absorb the information needed.