Surden: Computable Contracts Explained – Part 1

[UPDATE: Part 2 of Harry Surden’s post on Computable Contracts is now available.]

Professor Harry Surden of the University of Colorado has posted Computable Contracts Explained – Part 1, at Concurring Opinions.

Here are excerpts from the post:

I had the occasion to teach “Computable Contracts” to the Stanford Class on Legal Informatics recently. [Click here for video of the presentation.] Although I have written about computable contracts here, I thought I’d explain the concept in a more accessible form.

I. Overview: What is a Computable Contract?

What is a Computable Contract? In brief, a computable contract is a contract that a computer can “understand.” In some instances, computable contracting enables a computer to automatically assess whether the terms of a contract have been met.

How can computers understand contracts? […] The short answer here is that the contracts that are made computable don’t involve the abstract, difficult or relatively uncertain legal topics that tend to occupy lawyers. Rather (for the moment at least), computers are typically given contract terms and conditions with relatively well-defined subjects and determinable criteria that tend not to involve significant legal or factual uncertainty in the average case.

For this reason, there are limits to computable contracts: only small subsets of contracting scenarios can be made computable. However, it turns out that these contexts are economically significant. Not all contracts can be made computable, but importantly, some can.

Importance of Computable Contracts

There are a few reasons to pay attention to computable contracts. For one, they have been quietly appearing in many industries, from finance to e-commerce. Over the past 10 years, for instance, many modern contracts to purchase financial instruments (e.g. equities or derivatives) have transformed from traditional contracts, to electronic, “data-oriented” computable contracts. […]

Computable contracts also have new properties that traditional, English-language, paper contracts do not have. […] computable contracts can serve as inputs to other computer systems. These other systems can take computable contracts and do useful analysis not readily done with traditional contracts. For instance, a risk management system at a financial firm can take computable contracts as direct inputs for analysis, because, unlike traditional English contracts, computable contracts are data objects themselves. […]

Because of the length, I am splitting this explanation into two posts […]. The next post will discuss the computable contracting approach, how it actually works, its limits, and how it can be understood as a partial solution to the three problems just described.

For more details, please see the complete post.

HT @HarrySurden

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