Law & Economics

Contract and Private Ordering

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Penalty Default Rule

A default rule designed to induce parties to disclose information or contract expressly by assigning an unfavorable fallback term to the better-informed party.

Why It Matters

Penalty defaults connect contract doctrine to information economics by using default terms to encourage clearer drafting and reduce strategic nondisclosure.

Selected Literature

A short list of directly relevant archive entries.

Related Cases

1854

Foundations of Law and Economics

Hadley v. Baxendale

9 Exch. 341, 156 Eng. Rep. 145 (1854)

Foreseeability, information disclosure, and limits on consequential damages for breach of contract.