The Present and Near Future of Self-Driving Contracts

Abstract

There has been a tidal wave of research in recent years examining the potential effects of artificial intelligence on the law. As early predictions from that literature begin to play out, small changes in the legal landscape are taking shape. This provides an opportune moment to take stock. In this chapter, we explore how AI is impacting automated private contracts today and in the near future.

We revisit the idea of ‘self-driving contracts.’ The self-driving contract consists of data-driven predictive algorithms, specified up front, that give the parties context-specific directives on how to comply with a contract’s objective. Rather than relying on human referees to fill gaps and reform provisions after disputes arise, these contracts would rely on micro-directives—which gather data about the current state of the world and account for the purpose of the contract—to update the parties’ obligations at the time of performance.

While the fully-specified self-driving contract may seem distant, this chapter discusses how AI technology is already being used to automate the building blocks of such contracts: self-driving provisions. We explore four examples of AI technology in this context: (1) dynamic pricing to automate the price of performance; (2) litigation analytics to automate the terms of non-performance; (3) legal review technology to automate legal compliance; and (4) negotiation technology to automate substantive obligations. The implications, lessons, and challenges presented by these technological developments are discussed.

Keywords: Contracts, Law, Technology, Big Data, Artificial Intelligence, Innovation, Contract Theory, Rules and Standards, Micro-Directives

JEL Classification: K12, K40, D86