On the economic analysis of contractual freedom and contract law

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Chapter 11 in The Economic Analysis of Civil Law, 2022, pp 356-362 from Edward Elgar Publishing

Abstract: From an economic point of view, an important reason for contractual freedom is the recognition that in a functioning competitive market system, it directs resources to their most valuable use. On such markets, prices of goods are then formed which reliably indicate the scarcity of resources. Also, quantities of goods are produced, which guarantee an efficient production structure, given the current state of production possibilities. Once all transactions have been completed, the two fundamental theorems of welfare economics apply: every market equilibrium is a Pareto optimum, and every Pareto optimum is a market equilibrium. However, contracts that bring an advantage for both parties to the contract do not always represent an increase in welfare in the sense of a Pareto improvement. This only applies if the contract has no negative effects for third parties.

Keywords: Economics and Finance; Law - Academic (search for similar items in EconPapers)
Date: 2022
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