A brief survey on law and economics of contract law

Author:Yusuf Sertaç Serter
Pages:126-136
SUMMARY

Right to own property and freedom of contract are two fundamental rights for the good of society. That's to say – together with property law – contract law is vital for a good functioning economy. Thus, contract is a solid instrument to increase social welfare. Accordingly, a brief description of economic analysis of contract law will be carried out in this essay. As such, the author of the essay ... (see full summary)

 
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A brief survey on law and economics of contract law1
Assistant professor Yusuf Sertaç SERTER2
Abstract
Right to own property and freedom of contract are two fundamental rights for the
good of society. That’s to say – together with property law contract law is vital for a good
functioning economy. Thus, contract is a solid instrument to increase social welfare.
Accordingly, a brief descriptio n of economic analysis of contract law will be carried out in
this essay. As such, the author of the essay attempts to find appropriate answers to certain
major questions including the following: Why are contracts good from a societal point of
view? What types of risks can arise in a contract? What is a fully specified contract and
how will risks be alloca ted in a fully specified contract? Why is a particular risk allocation
in contracts important for both society and contracting parties? What are the consequences
of transaction costs for contract law? What is the economic purpose o f codification of
default rules?
Keynotes: law and ec onomics of contract law, fully specified contra ct, risk
allocation, default rules
JEL Classification: K12
1. Introduction
From an economic point of view, right to own property and freedom of
contract are two fundamental rights for the good of society. That’s to say - together
with property law - contract law is vital for a good functioning economy. It can be
alleged that there are two explanations for such statement, based on two different
approaches: Pursuant to the philosophical approach, freedom of contract
guaranteed under contract law is based on private autonomy. As such, contract is
the legal expression of the idea stating that people, as private autonomies, have
certain rights with regard to their own wishes and contract provides people with an
instrument to express of their own free will. On the other hand, the economic
approach justifies the aforementioned statement in a totally different way since
1 This essay was originally submitted to Professor Dr. Hans-Bernd Schäfer on November 2013 as the
mid-term paper for the course named “Economic Analysis of Law” taken within the scope of the
LL.M. programme in “Law & Economics” at Bilkent Graduate School o f Economics and Social
Sciences, and awarded grade A (i.e. 99 / 100). The author wishes to express sincere appreciation and
gratitude to Professor Schäfer for his valuable guidance in the preparation of this essay. As always,
all mistakes are my own.
2 Yusuf Sertaç Serter School of Law, Anadolu University, Turkey, ysserter@anadolu.edu.tr

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