Economic analysis of contract law

Economic analysis of contract law examines how legal rules influence behavior and resource allocation. It suggests that contracts are designed to minimize costs associated with negotiating, enforcing, and preventing breach, thereby promoting efficiency. By ensuring parties stick to agreed terms and allocate risks appropriately, contract law encourages investments and trade. This approach views legal rules as tools to create incentives that lead to socially optimal outcomes, balancing fairness with economic efficiency. In essence, it explores how legal frameworks shape economic decisions and contribute to overall economic well-being.