The Charles Evans Gerber Transactional Studies Center
Center for Contract and Economic Organization
The concept of “efficient breach” - the idea that a contracting party should be encouraged to breach a contract and pay damages if doing so would be more efficient than performance – is probably the most influential concept in the economic analysis of contract law. It is certainly the most controversial. Efficient breach theory has been criticized from both within and without the economic approach, but the most prominent criticism is that it violates deontological ethics - that the beneficiary of a promise has a right that it be performed, so that breaching the promise wrongs the promisee. This essay argues that this criticism is misplaced, and that efficient breach theory, properly understood, is entirely consistent with parties’ complying with their deontological obligations. Instead, the intuitive resistance that most people experience to the concept may be better explained by aretaic concerns - specifically, that failing to complete a contractual relationship is not conducive to virtuous character or to the maintenance of a flourishing community. While efficient breach can be squared with deontological ethics, it cannot be squared with virtue ethics unless one is prepared to argue that seeking efficiency is a virtue, or at least that it is not a vice.
Avery W. Katz,
Virtue Ethics and Efficient Breach,
Suffolk University Law Review, Vol. 45, p. 777, 2012; Columbia Law & Economics Working Paper No. 402
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/1694