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

Eric Rasmusen () and .

Law and Economics from University Library of Munich, Germany

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.

JEL-codes: K (search for similar items in EconPapers)
Date: 1995-06-14
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