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.


Contracts | Evidence | Law | Litigation

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