The Economics of Original Intent

Utility is maximized by the intent of transaction, not by the letter of the contract of the transaction, if any such document exists. This forms an economic argument for the interpretation of contracts on original intent.

Consider some contract using particular language at a certain point and time. The individuals consenting to such a contract had a particular understanding of the contract. There may be some error or variance in the interpretations among individuals even at the time, but it will be smaller than the variance introduced over time by the evolution of language and legal precedent over time.

Let’s separate the two identified sources of error: Original error and dynamic error. Original error occurs when individuals agree to certain language, but those individuals have different understandings or intents in connection with the language agreed to. Dynamic error is error which arises from institutional changes over time. For example, a judge may hear a case on a certain date, but the case is in connection with a contract written many years prior. There may be new legal precedents or changes to the meaning of plain language introduced between the time the contract was entered into and the time of the hearing.

Per economics we know that the market optimizes utility by transaction at a certain point in time. If the transaction is contractual in nature then we know that it is the point of time per the transaction in which utility was maximized, at least in theory. In practice it is empirically possible for dynamic changes to reduce original error, but this should be expected only as a subset of possibilities over time, not a dominant case. In any case, utility seems to be maximized by interpreting cases according to original intent of the contract rather than by anachronistic or hyperliteral analysis, even if the literal analysis is non-anachronistic.

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