This article examines the law pertaining to secrecy in contractual bargaining and argues that courts decide cases more consistently with contractarian principles than with economic ones. The economic theory of law claims that courts ought to require people to disclose secret information when that information was acquired as a by-product of other productive activity and to allow people to keep information secret when it was the product of significant investment. The contractarian theory argues that courts ought to (a) protect people from catastrophic losses, (b) require disclosure of secrets whose existence is not known to others, and (c) allow bargainers to keep visible secrets provided that their bargaining partners face roughly equal costs of acquiring the same information. A model is developed that specifies the effects of various information asymmetries in bargaining and shows how the courts focus on correcting the sorts of asymmetries that a contractarian would worry about rather than on correcting those asymmetries that an economic analyst would find most important.
All Science Journal Classification (ASJC) codes
- Social Sciences (miscellaneous)
- Sociology and Political Science