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The Law of Impersonal Transactions

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  • Benito Arruñada

Abstract

Most economic interactions happen in a context of sequential exchange in which innocent third parties suffer information asymmetry with respect to previous originative contracts. The law reduces transaction costs by protecting these third parties but preserves some element of consent by property right holders to avoid damaging property enforcemente.g., it is they, as principals, who authorize agents in originative contracts. Judicial verifiability of these originative contracts is obtained either as an automatic byproduct of transactions or, when these would have remained private, by requiring them to be made public. Protecting third parties produces a legal commodity which is easy to trade impersonally, improving the allocation and specialization of resources. Historical delay in generalizing this legal commoditization paradigm is attributed to path dependencythe law first developed for personal tradeand an unbalance in vested interests, as luddite legal professionals face weak public bureaucracies.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 500.

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Date of creation: Sep 2010
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Handle: RePEc:bge:wpaper:500

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Keywords: Property rights; formalization; impersonal transactions;

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  1. Hoffman, Philip T. & Postel-Vinay, Gilles & Rosenthal, Jean-Laurent, 2001. "Priceless Markets," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226348018, 01-2013.
  2. Wallis, John Joseph, 2011. "Institutions, organizations, impersonality, and interests: The dynamics of institutions," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 79(1-2), pages 48-64, June.
  3. Henry Hansmann & Reinier Kraakman, 2000. "The Essential Role of Organizational Law," Yale School of Management Working Papers, Yale School of Management ysm147, Yale School of Management, revised 01 Nov 2001.
  4. Hansmann, Henry & Kraakman, Reinier, 2002. "Property, Contract, and Verification: The Numerus Clausus Problem and the Divisibility of Rights," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 31(2), pages S373-420, June.
  5. Wallis, John Joseph, 2011. "Institutions, organizations, impersonality, and interests: The dynamics of institutions," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 79(1), pages 48-64.
  6. Benito Arruñada, 2001. "Property enforcement as organized consent," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 564, Department of Economics and Business, Universitat Pompeu Fabra.
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