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The Freedom to Contract and the Free-Rider Problem

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  • Neeman, Zvika

Abstract

We present an economic argument for restraining certain voluntary agreements. We identify a class of situations where single individuals or parties may use the freedom to contract to subtly manipulate large groups of individuals by offering them contracts that promote free-riding behavior. We provide three examples where placing restrictions on the freedom to contract may prove beneficial. The first example provides a rationale for the prohibition of exclusionary contracts. We point to the role most favored nation clauses may play in facilitating such inefficient exclusionary practices. The second example provides justification for prohibiting employers from proposing to compensate workers for committing not to join a labor union. The third example provides a rationale for the ban against vote trading. Copyright 1999 by Oxford University Press.

Suggested Citation

  • Neeman, Zvika, 1999. "The Freedom to Contract and the Free-Rider Problem," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(3), pages 685-703, October.
  • Handle: RePEc:oup:jleorg:v:15:y:1999:i:3:p:685-703
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    Citations

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    Cited by:

    1. Ilya Segal, 1998. "Contracting with Externalities," Public Economics 9802002, EconWPA.
    2. Eddie Dekel & Matthew O. Jackson & Asher Wolinsky, 2004. "Vote Buying," Discussion Papers 1386, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
      • Jackson, Matthew O. & Dekel, Eddie & Wolinsky, Asher, 2005. "Vote buying," Working Papers 1215, California Institute of Technology, Division of the Humanities and Social Sciences.
      • Eddie Dekel & Matthew O. Jackson & Asher Wolinsky, 2005. "Vote Buying," Others 0503006, EconWPA.
    3. Ernesto Dal Bo, 2000. "Bribing Voters," Economics Series Working Papers 39, University of Oxford, Department of Economics.
    4. Frank Daumann & Alfred Wassermann, 2009. "Does trading votes in national elections change election outcomes?," Public Choice, Springer, vol. 139(3), pages 429-441, June.
    5. Mike Burkart & Samuel Lee, 2008. "One Share - One Vote: the Theory," Review of Finance, European Finance Association, vol. 12(1), pages 1-49.
    6. Elhauge, Einer & Wickelgren, Abraham L., 2015. "Robust exclusion and market division through loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 111-121.
    7. Kaushik Basu, 2007. "Coercion, contract and the limits of the market," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 29(4), pages 559-579, December.
    8. Neeman, Zvika & Orosel, Gerhard O., 2006. "On the efficiency of vote buying when voters have common interests," International Review of Law and Economics, Elsevier, vol. 26(4), pages 536-556, December.
    9. Eddie Dekel & Matthew O. Jackson & Asher Wolinksy, 2006. "Vote Buying II: Legislatures and Lobbying," Discussion Papers 1433, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    10. Miklós-Thal, Jeanine & Shaffer, Greg, 2017. "Private contracting with externalities: Divide and conquer?," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 460-472.
    11. Eddie Dekel & Matthew O. Jackson & Asher Wolinksy, 2006. "Vote Bying I: General Elections," Discussion Papers 1434, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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