need, or it is too costly to provide them with, concrete guidance regarding the perfor bligation. Because standards permit parties much latitude(the seller must deliver in a reasonable" time), a good standard will confer discretion only when a party's likely actions under it will maximize joint rather than individual gains. Statutory drafters and courts, we will argue, often adopt default rules and standards that fail to satisfy these stringent conditions. This is itself inefficient because parties respond to bad rules or standards by contracting out of them. The creation of inefficient defaults thus raises business parties' contracting costs but does not otherwise affect their behavior. Our theory s third implication holds, in consequence, that the effective domain of business contract law is much smaller than is commonly thought. Another way to put this point is that the difficulty of creating good defaults makes much of what today is called contract law irrelevant to commercial lif In addition to the many defaults, contract law contains a number of mandatory rules that are applied to contracts between firms as well as to contracts between firms and persons. The fourth implication of our efficiency theory is that many of the rules regulating business contracts should not be mandatory. We discuss a number of mandatory rules, including the interpretation rules, the modification rules and the rules relating to liquidated damage clauses. The justification for these rules apparently is a form of paternalism. The contract terms the rules override do not create externalities and are not unconscionable. Rather, contract law overrides terms that appear to decision makers to conflict with the parties true substantive intentions. We argue, to the contrary, that business firms have good reasons to adopt the terms that today are prohibited, and that a commitment to party sovereignty requires those reasons to be respected There are several reasons why an attempt to develop a general efficiency theory of business contracts is particularly salient now. First, the specification of a good contract law has become an important priority in many countries as they have made a commitment to markets. It is a consensus that a good contract law is a necessary condition for a modern commercial economy. It is less well understood just how such a law is supposed to function. Our article thus attempts to address concerns that have global implications8 need, or it is too costly to provide them with, concrete guidance regarding the performance obligation. Because standards permit parties much latitude (the seller must deliver in a “reasonable” time), a good standard will confer discretion only when a party’s likely actions under it will maximize joint rather than individual gains. Statutory drafters and courts, we will argue, often adopt default rules and standards that fail to satisfy these stringent conditions. This is itself inefficient because parties respond to bad rules or standards by contracting out of them. The creation of inefficient defaults thus raises business parties’ contracting costs but does not otherwise affect their behavior. Our theory’s third implication holds, in consequence, that the effective domain of business contract law is much smaller than is commonly thought. Another way to put this point is that the difficulty of creating good defaults makes much of what today is called contract law irrelevant to commercial life. In addition to the many defaults, contract law contains a number of mandatory rules that are applied to contracts between firms as well as to contracts between firms and persons. The fourth implication of our efficiency theory is that many of the rules regulating business contracts should not be mandatory. We discuss a number of mandatory rules, including the interpretation rules, the modification rules and the rules relating to liquidated damage clauses. The justification for these rules apparently is a form of paternalism. The contract terms the rules override do not create externalities and are not unconscionable. Rather, contract law overrides terms that appear to decision makers to conflict with the parties true substantive intentions. We argue, to the contrary, that business firms have good reasons to adopt the terms that today are prohibited, and that a commitment to party sovereignty requires those reasons to be respected. There are several reasons why an attempt to develop a general efficiency theory of business contracts is particularly salient now. First, the specification of a good contract law has become an important priority in many countries as they have made a commitment to markets. It is a consensus that a good contract law is a necessary condition for a modern commercial economy. It is less well understood just how such a law is supposed to function. Our article thus attempts to address concerns that have global implications