What Can Contract Lawyers Learn from Law and Economics?

Abstract

This is the lecture text which I was invited to given at the University of Tasmania. My aim in this lecture is to offer some general observations on what insights law and economics, which is also known as the economic analysis of law, can offer us into contract law. I argue that despite some serious limitations of this approach, contract lawyers can benefit from the economic analysis of contract law. At least, we can benefit in three ways. Firstly, economic analysis can be a method to evaluate the effectiveness of law. Secondly, it can help us in identifying the winners and losers created by the law. Thirdly, it can broaden our understanding of business behaviour so that we can make contract law meet legitimate commercial expectations. The lecture will proceed as follows. After a brief review of the history of the law and economics movement, I will use three examples in English contract law, namely misrepresentation, the exclusion clause in consumer contracts, and the unfair contract term to illustrate the three merits of law and economics noted above.