Rules of Evidence and Liability in Contract Litigation: The Efficiency of the General Dynamics Rule
Journal of Public Economic Theory. 2017;19:1154–1165
Posted: 13 Mar 2015 Last revised: 21 Apr 2018
Date Written: March 23, 2015
We examine rules of evidence and liability in contract litigation. When a contractor fails to perform, it has a legal defense that the buyer withheld private information relevant to the performance of the contract. Suppose the buyer claims that admitting evidence for the defense would compromise a valuable secret, e.g., a state secret, what should the legal rule be? We show that the evidentiary rules introduced by the Supreme Court in General Dynamics v. U.S. lead to a more efficient outcome than either a strict liability rule or an evidentiary rule requiring the disclosure of the buyer's private information.
Keywords: Procurement auctions, State-Secrets Privilege, Superior Knowledge, Private Information
JEL Classification: D44, D82, H56, H57
Suggested Citation: Suggested Citation