Journal Article

The freedom to contract and the free-rider problem

Z Neeman

in The Journal of Law, Economics, and Organization

Volume 15, issue 3, pages 685-703
Published in print October 1999 | ISSN: 8756-6222
Published online October 1999 | e-ISSN: 1465-7341 | DOI: http://dx.doi.org/10.1093/jleo/15.3.685
The freedom to contract and the free-rider problem

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We present an economic argument for restraining certain voluntary agreements. We identify a class of situations where single individuals or parties may use the freedom to contract to subtly manipulate large groups of individuals by offering them contracts that promote free-riding behavior. We provide three examples where placing restrictions on the freedom to contract may prove beneficial. The first example provides a rationale for the prohibition of exclusionary contracts. We point to the role most favored nation clauses may play in facilitating such inefficient exclusionary practices. The second example provides justification for prohibiting employers from proposing to compensate workers for committing not to join a labor union. The third example provides a rationale for the ban against vote trading.

Journal Article.  0 words. 

Subjects: Law ; Economics

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