47 Pages Posted: 26 Apr 2005
Date Written: March 10, 2005
Property rights and contract law are two of our most basic legal categories. Many legal scholars describe what makes them different; this Essay describes how they work together to promote economic exchange. Incorporating the insights of both "transaction cost" and "new property rights" economics, it identifies two crucial contributions that property rights make to real-world contracting: (1) precontractual liability, or protection for disclosure of sensitive information in the period leading up to contract formation; and (2) enforcement flexibility after a contract is executed, in the form of many subtle but important advantages that accrue to a contracting party who also holds a property right. This Essay argues that property's "transactional" role is growing in importance, as the "new economy" ushers in a more transaction-intensive industrial structure featuring greater numbers of smaller, more specialized firms.
Keywords: Property rights, precontractual liability, enforcement flexibility
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