This Article examines the relationship between contract and property law by examining the extent to which parties tend to conceptualize and treat contracts as property. In doing so, this Article seeks to answer a question residing at the intersection between contract and property law, namely, whether the promises underlying contracts merely constitute a form - an empty vessel into which substantive property rights are poured - or whether they constitute something more substantial, perhaps even a species of property itself. If it is the latter, which I suspect it is, this suggests that, at the very least, one can understand contract law and some of its more pressing problems much better (such as whether to allow efficient breach, or whether to continue the common law's expressed preference for money damages over specific performance) by viewing them, at least in part, through a property-based lens. More ambitiously, if the promises in contracts can be shown to be valued as a type of property, then policy makers would do well to consider various property-based solutions to contract law previously thought to be unavailable or inappropriate.

To test whether, and to what extent, contract law has its basis in property, I conducted an experiment to examine whether the endowment effect - a key component of property law and one of the most important findings in behavioral economics - plays a role in the way parties tend to think about contracts. The endowment effect, which has been called “the most significant single finding from behavioral economics for legal analysis to date,” holds that individuals tend to value those things they happen to own more than they would have valued those same things if they happened not to own them. So, for instance, the endowment effect has shown that individuals who tend to value a particular item (e.g., a candy bar) at $1 will frequently place a greater value on that item (more than $1) once it is given to them and they come to think about that item as their private property. This strange result not only challenges our understanding of how value is traditionally measured, but it stands in stark contrast to one of the most important tools of legal analysis: the Coase theorem.

According to the Coase theorem, an individual who places a one-dollar value on an item such as a candy bar should value that candy bar at $1 whether it is in the store or in their pantry: the mere ownership of an item should not change a party's valuation of that item one way or another. More formally, the Coase theorem predicts that “the allocation of resources to individuals who can bargain and transact at no cost should be independent of initial property rights.” Consequently, where bargaining is costless, the price an individual is willing to pay (WTP) to acquire an item (such as a candy bar) should be equal to the price an individual is willing to accept (WTA) to part with that same item. The endowment effect provides empirical evidence against the Coase theorem's prediction by revealing that, in fact, individuals frequently provide very different answers to the questions “how much would you buy item X for if you did not own it” and “how much would you sell item X for if you did own it.” The difference between the two values offered for “X” has come to be called the “willingness to pay” versus “willingness to accept” gap (or the WTP-WTA gap), and has also been referred to as the “offer-asking problem.”

While there is substantial research supporting the endowment effect in property law, there have been few tests, and little direct evidence, of such an effect in contract law. This seems strange, because contract law is a place where the WTP-WTA gap would, if it existed, seem to be of the greatest practical importance. This is because the offeree's WTP and the offeror's WTA is what accounts for the desire of parties to enter into contracts in the first place, and is therefore at the heart of the types of transactions with which contract law is concerned! Stated simply, unless a party believes it will increase its utility (broadly defined) by entering into a bargain with another party to exchange property rights, that party will refuse to contract. Instead, the party will prefer to maintain the status quo.

Not only is it strange, but the fact that the endowment effect has not been directly tested on the promises making up contract law is also unfortunate. As other scholars have argued, contract law seems to share a number of other important characteristics with property law, and both fields might benefit by bridging this theoretical divide. Specifically, if the presence of an endowment effect, which has heretofore only been associated with the ownership of property, can also be detected in contract law, it would seem to indicate that, on at least some level, that contract law behaves like and possesses characteristics of property law as well. This finding would not only help bridge these seemingly distinct areas of law, but would allow important insights gleaned from one area to be transferred to the other, as discussed more fully in the Article's conclusion.

Therefore, this Article fills this empirical gap and tests whether, and to what extent, the endowment effect applies directly to the promises to exchange goods (i.e., contracts), rather than to the property that is frequently exchanged through the medium of contract. More specifically, the question explored in this Article is whether an individual who does not yet “own” an item, but merely has some contractual right to obtain that item at some future date would also experience something like the endowment effect in the promise itself.