Are EULAs inefficient?
2008-11-07 · Original WordPress address
Tim Lee says so:
It should be remembered that every contract signed is a prelude to possible state coercion if the contract is broken. Like all other kinds of coercion, the possibility of contract-related litigation creates uncertainty and other deadweight costs. In addition, the act of offering contracts imposes a deadweight cost. Every time I’m presented with a contract, I have to at least skim through it to make sure that the terms are acceptable. A society in which contract formation is extremely cheap for one party will be a society in which other people have to spend a lot of time scrutinizing the contracts they offer. Finally, contracts impose costs on the court system. A legal system that makes contracts to cheap to create will lead to too much taxpayer money being wasted on contract litigation.
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In contrast, if things are structured so that each party bears roughly half the costs of contract negotiation, then each party is only going to propose a formal, written contract if he believes that the benefits of doing so will outweigh the costs to both parties. This is one of the good things about paper contract negotiations between flesh-and-blood people: If you give me a long contract to sign, you’re going to have to stand there and wait while I read the contract and decide if I want to sign it. Since standing around is a waste of your time, you’re only going to do that if you believe the transaction can’t happen without it. And you’re going to try to make the contract as short as possible so you don’t have to stand around too long.
I'm not so sure about this. EULA's impose a cost on customers, but they're willing to pay those costs so I'm not sure why these would be dead weight losses. I agree that if I read every contract offered me, that would entail high costs, but I don't read every contract offered me. There's a risk that if I don't read the contract I'll be signing away my life, but clearly if I buy the software I'm willing to bare this risk.
I agree legal costs are dead weight losses but its an empirical question as to how much cost EULA's impose on our court system. I'm guessing not very many of these contracts are contested in courts so the cost is really low.
Standards of fairness may argue against EULA's (e.g. both contracting parties should bare equal contracting related costs), but the efficiency based argument against them doesn't work for me.
As a complete aside: what's so bad about leasing software vs buying it? This is the same question I have for folks that go nuts over copy-protection in games. So what if those schemes result in psuedo-ownership of games? If the game isn't fun enough to lease, then don't lease it.