Pandemic Crisis, Power and the Role of the State

We build on the experience of the COVID-19 crisis to investigate how a State owned and a private company, such as the national health system, are managed when a crisis may occur. We develop our analysis considering an incomplete contract model. We concentrate our attention on the incentives for economic agents assuming that the State expropriates property rights in the crisis event. The choice between public and private health system depends on three key elements: expropriation degree of the State/power of the private sector, damage of cost reduction innovations, probability of a crisis event. If the probability of the crisis is high, the damage is significant and the contracting power of the manager is strong then public ownership may be optimal because cost innovations are more aligned to the first best solution than in case of a private ownership.

CONTRACTING RISKS

Contracts serve an important function: allocation of risks. In achieving this function, contractual parties routinely include a force majeure clause in their contracts to be excused from performance in the face of a supervening event. But how do force majeure clauses allocate risks? This Article breaks down this inquiry into three interrelated questions: (i) why do parties include force majeure clauses considering the robust common law excuse doctrines such as impossibility? (ii) How have courts historically approached force majeure clauses? And (iii) what serves as the most equitable and efficient framework for the risk-allocative function of force majeure clauses? This Article's fresh look at force majeure clauses will inform courts' approach to a slew of claims arising out of Covid-19 disruptions and future shocks. Using empirical methods (including machine learning and natural language processing) and doctrinal analysis, this Article makes the following contributions: First, based on empirical analysis of force majeure clauses and behavioral economics, it argues that parties primarily do away with common law's basic assumption (ex ante) requirement in their force majeure clauses to focus instead on ex post analysis. Second, 'using computational methods on force majeure cases since 1810, it shows that the control factor (as opposed to foreseeability, parties' intent, and contractual language) has been the leading factor in courts' decisions. Third, the Article normatively suggests an overhaul shift towards a proportional ex post analysis of force majeure clauses which allocates risks pursuant to promisor's measures to control the effects of the supervening event and promisee's degree of reliance on contractual promises.