[Consider] the problem of the standard form contract. The … [standard economic] model treats the problem by assuming it away. If people voluntarily enter into contracts it is because it is in their best interest to do so. If the terms of one producer are unsatisfactory, the customer will shop around for others; if information on contract terms were costlessly available (and could be analyzed costlessly) he would continue shopping until he received precisely the desired combination of price, quantity, and other contract terms. This, implicitly, is how economists have handled the problem. Additional sophistication occasionally creeps in by the recognition of costs of attaining, processing, and evaluating information; the consumer then would engage in such information processing to the point at which the expected marginal benefits of the additional information are equated to the marginal costs of its acquisition.

Suppose, however, that rather than view the standard form contract as a voluntary agreement, we view it instead as private legislation; the legislature in effect delegates the lawmaking process to private parties. … We will first stipulate that we are interested here only in the “hidden” terms of the contract – those beside the basic price and quantity terms. While such terms could be tailor-made for each contract, there are substantial economies to be gained by spreading the costs of producing (and analyzing the impact of) these terms over a large number of contracts.