Learning in Standard-Form Contracts: Theory and Evidence

Abstract Why are some contractual terms revised continuously while others stubbornly fixed? We offer an account of both change and stickiness in standard-form contracts. hypothesize that drafters (sellers) more likely to revise their standard when they have opportunity learn about the terms’ costs from experience. Consider a warranty. Offering warranty initial period will expose sellers claims malfunction by purchasers, allowing whether it is desirable going forward. When unable this manner, either because fail experiment or term question one where there no increased experience, such be relatively less frequently. While learning occur through various channels, we posit that, all else equal, carry experience frequently, whereas modalities do not contribute stagnation. Our results support hypothesis. Using large sample changes business consumer contracts over seven years, find than those not. These findings further illustrated supported interviews with in-house counsel. The suggest contract evolve time as experientially risks. analysis offers new accounts for use boilerplate, stickiness, has normative implications optimal design default rules product features (JEL codes: K12).