The Law of Contract Modifications: The Uncertain Quest for a Bench Mark of Enforceability

The law of contract modifications poses an analytical paradox: Modifications should be presumptively invalid because they may encourage extortionary, coercive, opportunistic or monopolistic behaviour. Modifications should be presumptively valid because they represent the parties\u27 assessment of their own best interests. A summary of the case-law reveals theoretical difficulties in the tests of enforceability. The authors use an economic framework of analysis in which they argue that the law of contract modification may be used to minimize the costs of contracting. Dynamic efficiency considerations argue against enforcement of all modifications although static efficiency considerations point in the opposite direction. The potential for opportunistic behaviour and moral hazard problems suggest some variables that are relevant to formulating legal rules which will aid in reducing the long-run costs of contracting

The Law of Contract Modifications: The Uncertain Quest for a Bench Mark of Enforceability

The law of contract modifications poses an analytical paradox: Modifications should be presumptively invalid because they may encourage extortionary, coercive, opportunistic or monopolistic behaviour. Modifications should be presumptively valid because they represent the parties\u27 assessment of their own best interests. A summary of the case-law reveals theoretical difficulties in the tests of enforceability. The authors use an economic framework of analysis in which they argue that the law of contract modification may be used to minimize the costs of contracting. Dynamic efficiency considerations argue against enforcement of all modifications although static efficiency considerations point in the opposite direction. The potential for opportunistic behaviour and moral hazard problems suggest some variables that are relevant to formulating legal rules which will aid in reducing the long-run costs of contracting

Financial constraints and investment: assessing the impact of a World Bank credit program on small and medium enterprises in Sri Lanka

This paper examines the investment behaviour of a sample of small, credit-constrained firms in Sri Lanka. Using a unique panel data set, we analyze and compare the activities of two groups of small firms distinguished by their differential access to financing; one group consists of firms with subsidized loans from the World Bank, while the other group consists of firms without such subsidies. The paper shows that the program led to higher levels of investment for financially constrained firms. However, the evidence is inconclusive on whether the program improved economic efficiency.