An Economic Analysis of the Duty to Disclose Information: Lessons Learned From the Caveat Emptor Doctrine

This Article examines the economic theories that model rules requiring the disclosure of information between contracting parties in light of the development and evolution of the doctrine of caveat emptor. If correct, these theories predicting when information must be disclosed must account for the common law usurpation of disclosure requirements in the purchase and sale of realty. In other words, if the economic analysis is correct, these theories must explain why no disclosure of information is required with respect to the sale of realty at common law. The alternative explanation is that the caveat emptor doctrine should not be applied with respect to the sale of realty - that its use has been erroneous for centuries.

Hence if the theories are accurate, some disclosure is or should be required with respect to the sale of realty. Conversely, if the economic theory mandates disclosure of certain information even with respect to the sale of realty, perhaps the common law doctrine of caveat emptor is ill suited to address issues that arise from modern-day real estate transactions.