The law of impersonal transactions
AbstractMost 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 rightholders to avoid damaging property enforcement—e.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 dependency—the law first developed for personal trade—and an unbalance in vested interests, as luddite legal professionals face weak public bureaucracies.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1187.
Date of creation: Nov 2009
Date of revision: Sep 2010
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Web page: http://www.econ.upf.edu/
Property rights; formalization; impersonal transactions.;
Other versions of this item:
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
- NEP-CBE-2009-12-19 (Cognitive & Behavioural Economics)
- NEP-CTA-2009-12-19 (Contract Theory & Applications)
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- Henry Hansmann & Reinier Kraakman, 2000. "The Essential Role of Organizational Law," Yale School of Management Working Papers ysm147, Yale School of Management, revised 01 Nov 2001.
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