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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 its most prominent criticism is that it violates deontological ethics – that the beneficiary of a promise has a right to performance, so that breaching the promise wrongs the promisee.

This essay argues that this criticism is misplaced, and that efficient breach theory, properly understood, is not inconsistent 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.


Contracts | Law | Law and Economics