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Freedom of Contract

There are three basic institutions that provide the framework for all economic transactions in contemporary society: (1) markets, (2) governmental regulations, and (3) contracts. The economic analysis of their performance and function reveals that a contract is an especially effective legal institution in coordinating private economic transactions if the following requirements are satisfied in the process of contract formation and contract performance: (a) freedom of contract, (b) fairness and social utility, (c) bargaining power parities, (d) symmetric information and transparency of intentions, (e) third-party exemption, (f) the possibility of adjustment, (g) a legal forum for settlement, and (h) enforceability.

Philosophical Interpretations

Freedom of contract is sometimes explained as deriving from the prepolitical notion of freedom and autonomy, which assign rights to individuals to plan, consider, and pursue ...

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