Can parties bind themselves irrevocably?

When Odysseus wanted to hear the Sirens sing, he ordered his men to tie him to the mast and not untie him, no matter what he did. Highly sophisticated and equally informed parties sometimes try to achieve the same thing by signing contracts that expressly prohibit modification or renegotiation, no matter what. Should courts enforce such clauses when one party later tries to renege?

No, says Patrick Schmitz of the University of Bonn, in Should Contractual Clauses that Forbid Renegotiation Always be Enforced?  In the article, forthcoming in the Journal of Law, Economics, and Organization, he argues that such clauses should not be enforced because it may be “socially desirable” in some cases to override the wishes of the parties.

Abstract:

Recent work in the field of mechanism design has led some researchers to propose institutional changes that would permit parties to enter into nonmodifiable contracts, which is not possible under current contract law. This paper demonstrates that it may well be socially desirable not to enforce contractual terms that explicitly prevent renegotiation, even if rational and symmetrically informed parties have deliberately signed such a contract. The impossibility to prevent renegotiation can constrain the principal’s abilities to introduce distortions in order to reduce the agent’s rent, so that the first-best benchmark solution will more often be attained.