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Agency Law and Contract Formation

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  • Eric Rasmusen

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

A number of issues in the common law arise when agents make contracts on behalf of principals. Should a principal be bound when his agent makes a contract on his behalf that he would immediately wish to disavow? The tradeoffs resemble those in tort, 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 doctrines in agency law. In particular, an efficiency explanation can be found for the undisclosed principal rule, under which the principal is bound even when the third party with whom the contract is made is unaware that the agent is acting as an agent.

Suggested Citation

  • Eric Rasmusen, 2004. "Agency Law and Contract Formation," Working Papers 2004-14, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2004-14
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    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2004-14-rasmusen.pdf
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    Cited by:

    1. Bruce I. Carlin & Simon Gervais, 2009. "Legal Protection in Retail Financial Markets," NBER Working Papers 14972, National Bureau of Economic Research, Inc.
    2. Marianna Succurro, 2006. "An economic analysis of contracts signed between tour operators and travel agents," European Journal of Law and Economics, Springer, vol. 22(3), pages 199-218, November.
    3. Bruce Ian Carlin & Simon Gervais, 2012. "Legal Protection in Retail Financial Markets," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 1(1), pages 68-108.
    4. Caspar Rose, 2010. "The transfer of property rights by theft: an economic analysis," European Journal of Law and Economics, Springer, vol. 30(3), pages 247-266, December.

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