Agency Law and Contract Formation

Eric Rasmusen ()

No 2004-14, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: A number of issues in the common law arise when agents make contracts on behalf of principals. Should a principal be bound when his agent makes a contract on his behalf that he would immediately wish to disavow? The tradeoffs resemble those in tort, 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 doctrines in agency law. In particular, an efficiency explanation can be found for the undisclosed principal rule, under which the principal is bound even when the third party with whom the contract is made is unaware that the agent is acting as an agent.

Date: 2004
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Published in American Law and Economics Review, 2004

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Journal Article: Agency Law and Contract Formation (2004)
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