March 2006 Vol. 104 No. 5 THE REVIEW

The Role of Nonprofits in the Production of Boilerplate

Kevin E. Davis

Drafting contracts—by which I really mean the documents that embody contracts—requires investments of time, experience, and ingenuity. Those investments may yield significant returns because the quality of contractual terms can be an important determinant of the gains that parties realize from trade. This in turn suggests that, from an economic perspective, it is important to understand how contracts are produced. It seems particularly important to examine the production of contracts or individual contractual terms that are widely used—that is to say, “boilerplate.” In a market-oriented society, boilerplate is the predominant feature of the network of legal obligations that provides the formal structure of economic activity. As a result, depending on the extent to which parties’ behavior tracks their formally defined obligations, the quality of boilerplate can be a crucial determinant of overall patterns of economic activity. Understanding the determinants of the quality of boilerplate is an important step toward understanding whether and how the state ought to intervene in its production.

Recent academic literature on this topic has focused on production of boilerplate by either for-profit actors—whether for their own use or for use by their clients—or the state. The dominant theme is that for-profit actors typically have sub-optimal incentives to invest in production of contractual terms because they often cannot capture all of the benefits that flow from those investments. As for the state, the main concern is that it lacks the competence to formulate contracts that are suited to the diverse needs of private commercial actors.

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