On the Necessity of Necessity: An Economic Analysis of Contracts Concluded in a Situation of Need
On the Necessity of Necessity: An Economic Analysis of Contracts Concluded in a Situation of Need

Summary/Abstract: In this paper the authors argue that the received view is unwarranted. Their model suggests that in many cases the socially efficient contract price is higher than the rescue costs. To be sure, due to serious information problems the practical implementation of this theoretical optimum is much more difficult than the cost-plus price setting supported by the received view. While the policy implications of the model are rather tentative we suggest that the judicial costs of estimating policy variables should be taken into account. A second objective of this paper is to argue for an economic interpretation of the term ‘necessity’ in contract law. Instead of various substantive criteria suggested in the philosophical literature the authors suggest defining the term by working backwards from the possible remedies. The excuse of necessity should be available for contracting parties when, all things considered, a judicial control (modification) of the contract price is desirable. Necessity is thus “defined” by what courts can and should do.

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