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Licensed Unlicensed Requires Authentication Published by De Gruyter August 18, 2019

On the Optimal Number of Contract Types

  • Oren Bar-Gill and Clayton P. Gillette


The theoretical availability of an infinite number of contract types suggests that there may be an optimal quantity from which contractual parties could make a selection. In this Article, we emphasize the difficulty of identifying that optimal number, given information costs and other transaction costs related to the production of a contract type. We argue that standard market failures might cause markets to produce a suboptimal number of contract types. We then consider whether government should intervene to remedy any market failure. We conclude that government would generally lack the access to information necessary to identify the optimal number of contract types. Moreover, we argue that issues of political economy would impede the ability of government to achieve the optimal number of contract types, even if it were able to identify that number. Government, that is, may tend to either oversupply or undersupply contract types. Perhaps the best that government can do is to provide “soft” interventions that reflect appropriate defaults or safe harbors.

* William J. Friedman and Alicia Townsend Friedman Professor of Law and Economics, Harvard Law School.

** Max E. Greenberg Professor of Contract Law, NYU School of Law. For helpful comments and suggestions, we thank Albert Choi and participants at the “Freedom, Choice, and Contract” conference at Columbia Law School.

Cite as: Oren Bar-Gill & Clayton P. Gillette, On the Optimal Number of Contract Types, 20 Theoretical Inquiries L. 487 (2019).

Published Online: 2019-08-18
Published in Print: 2019-07-26

© 2019 by Theoretical Inquiries in Law

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