The Efficient Performance Hypothesis

Abstract

Notable American jurists and scholars have advanced an approach to contract enforcement that would render breach legally and morally uncontestable, assuming compensation follows. Much of the justification for this endeavor has rested upon claims of judicial and economic efficiency. But efficiency neither favors nor disfavors this conception of contract, formalized by the efficient breach hypothesis. This Essay develops an alternative approach to contract enforcement, expressed as the efficient performance hypothesis. The alternative approach predicts the same efficiency as the traditional one, but differs starkly in terms of its ethical understanding of contractual obligation. The efficient breach hypothesis supposes that the promisor has the legal right—not merely the power—to choose to perform or pay damages. That right belongs to the promisee under the efficient performance hypothesis. These discrete conceptions of promissory obligation do not exhaust the possibilities of course, but taken together the hypotheses suggest that other conceptions of legal and moral obligation may be employed within an efficient enforcement framework.