Pricing the Unforeseeable: An Essay for Stefan Grundmann

Abstract

Contract law provides a mechanism by which parties engage in private ordering by agreeing to provide performance in the future for a predetermined price. All systems of contract law, however, allow a party adversely affected by a remote event to be excused from performance under some circumstances. Many legal systems use the concept of “foreseeability” to define the circumstances that justify excuse. Traditionally, courts and commentators define foreseeability in terms of the likelihood or frequency of an event. But private ordering requires the capacity to determine whether risks are worth taking at the contractual price, a phenomenon that depends on the ability of parties to determine the expected loss from remote events. Technological developments in recent decades have dramatically altered the ability of commercial parties to predict and quantify the effects of such events. Importantly, that ability may vary among commercial actors. Contract law doctrine should evolve along with that technology and thus move from an event-based analysis of foreseeability to an agentbased one that considers the capacity of a particular actor to price risks into the contract. Excuse, impracticability, price theory, contract