The Economic Basis for Principle of Changed Circumstances

Compelling economic logic lies beneath the principle of changed circumstances.On the one hand, the valuation and costs of performance to contracting parties have changed in the case of changed circumstances so that the original contract is no longer an effective means of resource allocation and must be changed or canceled.On the other hand, in accordance with the requirements of economic efficiency, risk should be allocated to the superior risk-taking people.As neither of the contracting parties may meet the requirement, the principle of changed circumstances distributes risk fairly between the parties by adjusting or discharging the contract.