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``The Economics of Agency Law and Contract Formation''

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  • Eric Rasmusen

    (Indiana University School of Business)

  • .

Abstract

This article addresses issues that arise in agency law when agents make contracts on behalf of principals. The main issue is whether the principal should be bound when the agent makes a contract with some third party on his behalf which the principal would immediately wish to disavow. The resulting tradeoffs resemble those in tort law, so the least-cost-avoider principle is useful for deciding when contracts are valid and may be the underlying logic behind a number of different legal doctrines applied to agency cases. In particular, an efficiency explanation can be found for the undisclosed principal rule, which says that the principal is generally bound even when the third party is unaware that the agent is acting as an agent for him.

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Bibliographic Info

Paper provided by EconWPA in its series Law and Economics with number 9506002.

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Date of creation: 14 Jun 1995
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Handle: RePEc:wpa:wuwple:9506002

Note: An 82KB LaTeX file. A postscript file is available on request from Erasmuse@Indiana.edu.
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Web page: http://128.118.178.162

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References

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  1. Kathryn E. Spier, 1992. "Incomplete Contracts and Signalling," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 432-443, Autumn.
  2. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
  3. Rasmusen, E., 1992. "Mutual and Unilateral Mistake in Contract Law," Papers 92-022, Indiana - Center for Econometric Model Research.
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Cited by:
  1. Caspar Rose, 2010. "The transfer of property rights by theft: an economic analysis," European Journal of Law and Economics, Springer, vol. 30(3), pages 247-266, December.
  2. Alan M. Taylor, 2000. "A Century of Purchasing-Power Parity," NBER Working Papers 8012, National Bureau of Economic Research, Inc.

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