Commercial Law | International Law | International Trade Law | Law | Law and Economics
Center for Law and Economic Studies
Traditional economic analysis distinguishes economic organization along three dimensions: firm, contract, and market. This categorization is misleading in any number of respects, but none more so than the assumption that contract and market are separate modes of exchange. In fact, other than barter, which is almost unknown in contemporary commercial transactions, every market transaction is implemented by contract. Thus, in markets the two modes of exchange are inextricably combined. Moreover, the vast majority of contract activity occurs in some form of market, so it does not require much loss of generalization to say that not only are contracts in all markets, but markets are also in all contracts. This implies that as markets change in character so too will the contracts that are embedded in them. Economists have failed to appreciate the implications of this integration of contract and market because of their naive and parsimonious conception of contract. But lawyers, too, have failed to appreciate the tension between the fact that markets change the shape of contract and the state’s commitment to a unitary regime of contract law. This failure to understand the relationship between contract law and the central institutions of economic organization has significant consequences. Among them is the failure to recognize what I call the fundamental paradox of contracting in markets, the topic that I take up in this Article.
Robert E. Scott,
The Paradox of Contracting in Markets,
Law & Contemp. Probs.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/2629