Péter Cserne

Reasons for limiting freedom of contract:
questions of philosophy and policy

Freedom of contract is an ideologically charged notion which may attract strongly-held political beliefs[1] but which eludes the interest of the lawyer in his everyday work for the most part. To revoke the situation in this respect in Hungary, while the Constitutional Court has elaborated a doctrinal theory on the legitimate reasons for legislative limitations of freedom of contract,[2] standard text-books on contract law usually review (not even exhaustively) the different forms and types of the limits figuring in private or administrative law without even mentioning theoretical problems.[3]

So the Constitutional Court used abstract theoretical arguments, but these were deduced from more general theorems of a certain constitutional dogmatics and couldn’t reflect, by their nature, to questions raised in the theoretical literature on contract law. What is more curious is that also scholarly work in contract law has been, even since the political and economic changes in 1989 and 1990, until recent times and with very few exceptions,[4] almost insensitive to developments in contract theory, at least as it has formed in the English-speaking countries. Both approaches seem to be more or less closely tied to legal texts, the Constitution and the Civil Code, respectively.

If I am right in sketching the Hungarian situation of contract theory in this way, it will not be too late or unjustified to resume some of the main issues in contract theory in the mirror of a book, published in 1993. It is the treatise of a Canadian law professor, Michael J. Trebilcock on The limits of freedom of contract.[5]

This paper does not intend to be exhaustive as a review, it focuses rather on problems which seem to be of interest for a reader trained in law. Its structure is the following. After resuming the general character of the argumentation, I discuss some reasons for limiting freedom of contract, according to the order of the chapters in the book: commodification, externalities, coercion, asymmetric information imperfections, symmetric information imperfections. Then I make a detour to sketch a very simple version of the standard economic analysis of the breach of contract. The concluding section summarises some lessons for the Hungarian private law scholarship. Throughout the paper I shall avoid to cite technical details and microeconomic jargon usual in economic-analysis-of-law texts[6], except when it seems necessary to do otherwise.

Freedom of contract in moral and legal philosophy

Behind the law of contracts, a central subject area of private law lies a broad set of economic, social and political values that define the role of markets in modern developed countries. But markets are not the sole mode of social organisation. As Heilbroner argues,[7] societies may organise production and distribution around one of these: tradition (social conventions and status), command (centralised information gathering and processing and coercion) and market (decentralised decisions). At the same time a modern developed society not only has to cope with certain backdrops of the market economy relative to the two other modes of social organisation (potential for dramatic shifts in consumption and production, destabilisation of personal, social and communal relationships, and a significant degree of inequality) but a real society combines all these three organisational modes. Despite a relatively wide consensus in favour of economic liberalism and the market economy, there remain "many troubling and potentially divisive normative issues".

Trebilcock calls this consensus, together with its theoretical underpinnings the private ordering paradigm. In neo-classical economics this "predilection for private ordering over collective decision-making is based on a simple (perhaps simple-minded) premise: if two parties are to be observed entering into a voluntary private exchange, the presumption must be that both feel the exchange is likely to make them better off, otherwise they would not have entered into it." (p. 7) To rebut this presumption we have to refer either to contracting failures or market failures. These constitute (from an economic perspective) the reasons for the limits of freedom of contract.

What is the role of contract law from an economic perspective?[8] In general, it facilitates the voluntary (and well-informed) exchange of well-defined and exclusive private property rights. First, it is a "check on opportunism in non-simultaneous exchanges by ensuring that the first mover, in terms of performance, does not run the risk of defection, rather than co-operation, by the second mover." (p. 16) Second, it reduces transaction costs.[9]. Third, it provides "a set of default or background rules where the terms of a contract are incomplete" (p. 17). Forth, it distinguishes welfare-enhancing and welfare-reducing exchanges.

Utilitarianism, arguably the principal background philosophy of contemporary economics[10] is used to be criticised on the basis that it accepts existing preferences as given, it doesn’t offer "ethical criteria for disqualifying morally offensive, self-destructive, or irrational preferences as unworthy of recognition." If, on the contrary, economic theory acknowledges some exceptions, as it must, in cases involving minors or mental incompetents, then "some theory of paternalism is required, the contours of which are not readily suggested by the private ordering paradigm itself." (p. 21)[11]

There are also political justifications for the primacy of private ordering, which are based on individual autonomy (negative liberty) "as a paramount social value" (p. 8.). These liberal theories see the law of contracts as a guarantee of individual autonomy. Trebilcock cites two other stances of political philosophy, which are more ambivalent toward freedom of contract: theories based on the positive (affirmative) concept of liberty which are concerned with the fairness of distribution of welfare (equality) in society; and communitarianism that emphasises the essentially social nature of man (fraternity).

These four theories partly cohere and converge but partly contradict each other. To construct a normative theory of the law of contract and deduce arguments from it for or against certain limits of freedom of contract, the complex relationship "between autonomy values and welfare (end-state) values (efficiency, utility, equality, community)" (p. 21) shall be cleared. Throughout his book Trebilcock’s purpose is to demonstrate that the "convergence claim" (i.e. that a market ordering and freedom of contract simultaneously promote individual autonomy and social welfare) may be robust in general but is false in certain details. The second main lesson he explores is that there are problems (market failures) which cannot be appropriately addressed judicially, i.e. in a contract law setting through private law constraints on freedom of contract and he argues for a mix of policy instruments (p. 248–261)[12]

Some reasons for limiting freedom of contract

The main reasons for limiting freedom of contract are the fear of commodification of certain goods and relations; the presence of third-party effects; of coercion; imperfect information on behalf of one or both parties; supervision and control of revealed preferences of the contracting parties for different (paternalistic) reasons; the traditional common law rule of consideration which raises, as Trebilcock notes, a partly different question, that of the enforceability of promises[13]; and discrimination or antidiscrimination based on personal characteristics (race, gender, etc.) and (which is not obvious) on nationality (international trade restraints, immigration policy).

Commodification. Even in societies committed to political and economic liberalism, there is room for debate about the scope of the market. The critiques of the market paradigm may be (at least partly and superficially) based, among others, on historical arguments (as by Károly Polányi or Patrick Atiyah[14]) or may focus on heavily discussed questions of our days: "would permitting the sale of votes or public offices, the sale of blood or body organs, commercial surrogacy contracts, prostitution contracts or pornography undermine values of human self-fulfilment or human flourishing?" (p. 19)

These are, of course, not only the questions of the enemies of freedom and liberty. As the Nobel-laureate economist, Kenneth Arrow has pointed out: "a private property—private exchange system depends, for its stability, on the system’s being non-universal."[15] If political, legal and bureaucratic offices were auctioned off, their holders freely bribed or votes freely bought and sold, the private sphere would be massively destabilised. As it is well known, J. S. Mill argued in his On Liberty against permitting voluntary self-enslavement.

The main target of Trebilcock’s critique in this context is Margaret J. Radin’s theory about commodification and inalienability.[16] Radin, after raising five serious problems (market for new-borns, prostitution, commercial surrogacy, employment regulation, residential tenancy regulation) introduced two related concepts, which may be interesting to cite here. The double bind effect refers to the problem that "in many contexts prohibiting commodification or exchange may make the plight of the individual whose welfare is central to the commodification objection actually worse." For example, banning prostitution may eliminate an income-earning option of poor women. The other concept, domino effect refers to an effect counterbalancing the former, that "market rhetoric and manifestations [...] may change and pervert the terms of discourse in which members of the community engage with one another". (p. 25–26).

Trebilcock, while acknowledging Radin’s efforts "to conceptualise the unarticulated moral intuitions that many of us feel about many of the examples she uses" (p. 26), demonstrates that her particular judgements are not in accord with her general theory. There are further errors in the arguments similar to Radin’s: the one is to "draw false correlations between internal values and altruism and between external values and selfishness", another is to neglect that altruism, reciprocity, and community are likely to be suppressed not only by market forces but also by "coercive forms of redistribution through the tax and transfer system that are central to the modern welfare state." (p. 28–29) As an alternative approach, Trebilcock proposes to structure the moral intuitions about the cited problems as contracting or market failure problems (externalities, coercion, and information failures).

He than goes on to compare the merits of these two approaches (Radin’s and his own) through their consequences in different contexts. First, he analyses the relative advantages and disadvantages of different modes of allocation of scarce resources (e. g. of dialysis machines):[17] markets, lotteries, queuing, voting (democracy), administration (based on different merit criteria). As to the ethical problems of the transfer of human body parts and foetal tissues, he proposes to cope with the organ scarcity by creating a futures market in organs. Further, he compares the three most common solution to the prostitution problem: criminalization, legalisation (regulation), and decriminalisation to argue then for the latter.

While comparing the typical arguments, he does not miss to note some subtle details. For example, that there is a certain contradiction in the typical feminist stance as "[i]n the context of separation agreements and entitlements on marriage breakdown" "feminist theorists invoke market ideology and advocate the commodification of [women’s household] services in the name of equality and dignity, [i]n the context of surrogacy, however, the commodification [...] is often viewed by feminists to be an erosion of a woman’s dignity" (p. 48).

To sum up this topic, Trebilcock argues for a significant role for private ordering, for a careful design of default rules (emphasising the he claims "only a partial insight or wisdom for the law and economics perspective", p. 57) and for autonomy-enhancing public policies that broaden the access to market of historically oppressed groups.

Externalities. Externalities mean imposition of costs (negative) or benefits (positive) from a particular exchange transaction on non-consenting third parties. Positive externalities pose incentive problems (lead to suboptimal quantity of the good in question). Negative externalities are more important and serious (e.g. pollution). In addition, there is no generally accepted concept of the externality in economic theory. Autonomy-based theories formulate the same negative effect under the name ‘harm’ (or, within another category of Feinberg’s scheme: ‘offence’).

The crucial conceptual problem is that third-party effects (externalities in economics, harm in liberal theories) are pervasive. If all these effects "should count in prohibiting the exchange process or in justifying constraints upon it, freedom of contract would be largely at an end." (p. 58) Once one moves beyond rather tangible harms to third parties, many activities might be viewed as generating some externality (imposes costs on dependants, the social welfare system or the public health care system), including "inadequate dietary or exercise regimens, excessively stressful work habits, risky leisure activities." (p. 75)

Coercion. The seemingly simple question of what constitutes voluntary consent to a transaction is a serious conceptual problem. Suppose that there is full information, no cognitive deficiencies and the contract is complete. The question is then, whether the constrained choice of a party renders his consent involuntary. In one sense, all contracts are "coerced", because of the pervasiveness of scarcity of resources and opportunities. But on the other side, except for extreme cases (actual physical force, torture, hypnotic trance) almost every exchange can be viewed as voluntary (coactus tamen volui).

Rights theorists define coercion by drawing "a basic distinction between threats and offers. Threats reduce the possibilities open to the recipient of the proposal, whereas offers expand them" (p.79) The difficulties arise, however, in specifying the offeree’s baseline, against which the offer is to be measured. This measure may be statistical (what he might reasonably expect), phenomenological (what he in fact expects), or moral (what he is entitled to expect). Trebilcock shows that "the distinction between threats and offers depends on whether it is possible to fix a conception of what is right and what is wrong, of what rights people have in contractual relations independent of whether their contracts should be enforced." (p. 80)

Another approach to coercion, elaborated by Benson from a Hegelian perspective, states that "only equivalence in exchange fully respects [...] equal individual autonomy (cases of gifts and voluntary assumptions of risk aside)" (p. 81). The Aristotelian perspective of Gordley is also a theory of substantive fairness, it focuses on commutative or corrective justice which is "designed to maintain the pre-existing distribution of wealth" (ibid.)

The third approach to coercion, that of Kronman could be called "modified Paretian principle", in virtue of which "one would ask whether the welfare of most people who are taken advantage of in a particular way is likely, in the long-run, to be increased by permitting the kind of advantage-taking in question in the particular case" (p. 82)

Buckley has proposed anti-duress rules "in order to discourage parties from taking excessive and wasteful precautions against being subjected to extortionate contractual terms". To note, the two latter approaches are based on hypothetical, rather than actual, consent and they invert the conventional arguments of economists for voluntary exchanges (voluntariness implies welfare-improvement).

The fifth approach (literal Paretian principle) is that of law and economics scholars and asks: "Does this transaction render both parties to it better off, in terms of their subjective assessment of their own welfare, relative to how they would have perceived their welfare had they not encountered each other?" (p. 84)

A magnificent example of Trebilcock’s argumentative strategy is when he reviews several hypothetical situations (borrowed in part from the above-mentioned theorists, in part Trebilcock’s own ideas) to test the normative implications of the above-mentioned five theories for different cases of constrained choice. I do not want to deprive the reader of the excitement of the search for the right answer (if there is any), so I only repeat the questions: what are the implications of these theories in the following cases?

(1) The highwayman case (creation and exploitation of life-threatening risks: a highwayman or mugger holds up a passerby confronting him with the proposition: ‘Your money or your life’ and the passerby commits himself to hand over the money). (2) The tug and foundering ship case (exploitation but not creation of life-threatening risks: a third party encounters the highwayman and the passerby before the transaction is consummated and offers to rescue the passerby for all his money, less one dollar. Or imagine the same situation between a foundering ship on the stormy sea and a rescuing tug). (3) The dry wells case (exploitation but not creation of life-threatening risks with one supplier and many bidders: in a remote rural area all wells except from A’s dry up in a drought and A auctions off drinking water to desperate inhabitants for large percentages of their wealth. Or, the same sea situation with several ships and one rescuer). (4) The Penny Black case (exploitation but not creation of non-life-threatening situations: A comes across a rare stamp in his aunt’s attic and sells it either to B expoiting his idiosyncratic intense preferences or through a Sotheby’s auction to the highest bidder). (5) The lecherous millionaire case (A agrees to pay for a costly medical treatment of B’s child [or offers her an academic position or a promotion in the firm] in return for B’s sexual favours). (6) The cartelized auto industry case (contrived monopolies: major automobile manufacturers form a cartel to curtail drastically consumers’ rights of action with respect to personal injuries). (7) The single mother on welfare case (non-monopolised necessity: a person in necessity contracts with another who lacks monopoly but the terms are especially burdersome to the first, reflected in high risks and low return).

Trebilcock argues, here again, for a "relative institutional division of labour," in terms of which "the common law of contracts will be principally concerned with autonomy issues in evaluating claims of coercion, antitrust and regulatory law [with] issues of consumer welfare, and the social welfare system [with] issues of distributive justice". (p. 101)

Asymmetric information imperfections. The question here is: how much information is required for the exercise of autonomous choices. Or stated differently, if one party to a contract is substantially less well informed about some aspect of the contract subject matter than the other, whether contracts should not be enforced, or enforced on different terms, on that account. The problem is, of course, that information is almost always imperfect.

In common law terms, these information failure cases include fraud, negligent misrepresentation, innocent misrepresentation and material non-disclosure.[18] Trebilcock continues to contrast different theories, as in the previous chapter. He also treats information processing disabilities or cognitive deficiencies ("transactional incapacity" and "unfair persuasion") and standard form contracts. With respect to the latter, it is worth citing his warning (p. 119): "Simply observing the fact of standard form contracts yield no meaningful implications as to the underlying structure of the market. Indeed, we observe them being used in many settings where manifestly the market is highly competitive. [...] [E]ven in the absence of standard form contracts, we see many goods being offered on a take it or leave it basis in some of the most competitive retail markets in the economy."

Symmetric information imperfections. Symmetric information imperfections correspond to the domain of contract doctrines relating to frustration, contract modification and mutual mistake. All these doctrines define "the scope of permissible private or judicial adjustments to contractual relationships in the light of new information." (p. 127)

Trebilcock states that in long-term contracts there is a range of strategies for adjusting the allocation of unknown and remote risks: explicit insurance, hedging in futures markets, indexing clauses, ‘gross inequities’ clauses, arbitration clause, etc. The absence of them imply reasonably that the promisor agreed to assume the risk in question. (p. 130) He heavily criticises Posner’s approach which implies that it is for the judge to determine which of the both parties was the superior risk-bearer (insurer).

With respect to contract modification there has been a change in common law: traditional doctrine required fresh consideration to support an enforceable contract modification, but contemporary legislative, judicial and academic thinking applies a presumption of validity of modifications. Trebilcock favours the traditional view because, in contrast to the recent static view it reflects dynamic efficiency consideration, an ex ante perspective. Namely, it stresses that no constraints on recontracting may increase incentives to opportunistic behaviour where "hold-up" problems arise during performance: allowing recontracting may facilitate the reallocation of assigned risks that were initially assigned efficiently. (p. 168–170) He would allow recontracting only if "it is not possible to determine the efficient initial allocation of risk or where the risk in question [...] was so remote that the expected costs of bearing it would have minimal incentive effects." (p. 138).

A detour: the theory of efficient breach

Trebilcock makes some short detours in the book to define a much-discussed concept of economic analysis of law: the efficient breach of contract. (p. 142–143, 166–167, 184–186). This theory would permit unilateral breach to the party who has discovered a more profitable opportunity for the resources dedicated to performance, supposed that the breaching party compensates the other for his full expectancy losses. This breach is Pareto-superior (nobody is worse-off, some are better-off). Robin West, one of the critics of efficiency approach makes the objection that (1) "it encourages uncivil, unilateral, uncooperative attitudes towards contractual relationships" and (2) it deprives the non-breaching party of the possibility of sharing in the gains of the new opportunity "which a negotiated release from performance would engender”. (p. 142)

I think, this point need some more elucidation.[19] The thought behind "efficient breach of contract" is reflecting the "bad man’s" view of law, to use Oliver Wendell Holmes’ famous phrase. In this view, when a contract is made, the promisor is not obligated to perform but he has a choice either to perform or to pay damages instead to the breached-against party. Beyond the question whether this perspective eliminates the moral dimensions of a legal contract, this choice between delivery and damages raises another question: whether and how the breach of contract of one party may be efficient at all. In other words, which contract remedy leads to an outcome that maximises the joint net gains of the parties.

Let’s see a simple example. A seller, S can produce a good for $150. The good is not generally available. Therefore, a buyer, B1 enters into a contract with S for future delivery. The contract price is paid in advance. B1 values the good at $200. B1 makes an expenditure of $10 prior to delivery (reliance investment, R1) which is necessary for him to use the purchased good. If the contract is not completed, R1 has no value to B1. B1 has a choice: if he makes an additional investment (R2) of $24 and the good is delivered, he gains a sum of $30. (Else, R2 has no value.) For the moment it is assumed that both S and B1 are risk neutral, i.e. they care only about the expected value of the risky situation. (For example, both are indifferent between a gain or loss of $100 for sure and a gain or loss of $1000 with a probability of 10%.)

Before delivery there is a chance that another buyer (B2) wants to purchase the same good and offers a sum of either $0, $180 or $250. (For simplicity we assume that these values are equally likely and are the same as the amount B2 evaluates the good in each case.) Both S and B1 are aware of the possibility that S2 may offer more for the good than B1 does.

The case of fully specified contract. Economic theory assumes that if S and B1 could bargain costlessly and with full information, they would end up in an efficient situation. Let’s see what does it mean in this case.

First we deal only with R1. The contract price must be between $150 and $190 ($200–$10). The exact value is determined by the relative bargaining force of S and B1. Suppose that this price is $175. It is easy to demonstrate that the efficient contract includes a provision that in the event that B2 values the good at $0 or $180, S has to sell the good to B1. If B2 values the good at $250, S is to sell it to B1 and at the same time S has to pay damages (for breach of contract) to him. Say, the amount S pays to B1 equals $225. To prove the efficiency of the breach of contract, let’s consider the joint profit of S and B1. (Given that B2 offers the same amount as he values the good, his profit is not affected so it is not to be taken into account in determining the efficient contract provision.) If S sells to B1 and B2 offers $180, the joint profit is $40 ($175–$150=$25 for S + $200–$175–$10=$15 for B1). If S sold the good in this case to B2, the joint profit would fall to $20 ($180 revenue less $150 production cost less $10 of R1). When B2 offers $250 there are also two cases. If S sells to B2, the joint profit is $90 ($175+$250–$150–$225=$50 for S + $225–$175–$10=$40 for B1). If, however, S does not breach, the joint profit is only $40, as we have seen.

It is worth noting that there is a positive relation between the contract price and the ‘damages’ paid. If S had to pay more than $225 in case of breach, he would only contract for a higher price.

In a second turn let’s discuss what would be provided in a fully specified, i.e. efficient contract about R2. It might seem reasonable to think that it is efficient to invest $24 in order to get $30. But it should be kept in mind that this is the case only if S delivers the good. As we have seen, in the case of the $250 offer, efficiency dictates breach. So, given that the delivery occurs only with a probability of 2/3 (and that B1 is risk-neutral) the expected gain is only $20, therefore it is efficient to include a provision in the contract that forbids reliance investment R2.

I stress again that all the above-mentioned provisions presuppose that bargaining and information is costless. For example it may be difficult for S to detect B1’s gain from R2 or the parties may underestimate the probability that another purchaser, B2 offers more than B1. So, as is noted above it is reasonable to think, that legal rules are needed to regulate the issues raised by the breach of contract.

Three contract remedies and their efficiency. In a real world situation there operates a legal system to deal with breaches of contract. The breacher must compensate the breached-against party for damages. But which type of remedy is the optimal? The efficiency of the expectation, reliance and restitution remedies is examined in the same way: whether they lead to the same outcome as the fully specified contract analysed above.

Under the expectation remedy (ER), in case of S’s breach B1 can recover the amount that puts him in the same position that he would have been if the contract had been completed. Thus, B1 is compensated $200. (He has already paid the contract price and R1.) Given that S has to pay $200, he breaches only if S2 offers $250. So, in this respect, ER is efficient. It saves the costs of bargaining or in general of dealing with such rare contingencies as a competing purchaser who offers more. ER is independent of the contract price (which is showed to be between $150 and $190) and motivates S to breach if and only if B2 offers more than the value B1 attaches to the good. At the same time ER is inefficient with respect to R2. It gives B1 an incentive to invest $24 regardless of B2’s offer, since ER would compensate B1 with a sum of $230 in case of breach.

The reliance remedy (REL) puts the breached-against party in the position he would have been in if he had never entered into contract initially. In other words, after a breach S has to pay B1 the contract price and the reliance cost. The REL would be efficient if these two costs sum up to more than $180. But there is no guarantee that this will be the case, since the contract price is theoretically undetermined and may vary between $150 and $190. Adding the $10 of R1, the minimum of REL is $160, thus it cannot (always) exclude an inefficient breach. On the same ground as under ER, REL is inefficient with respect to R2. This remedy would allow a riskless gain to B1 and would lead to excessive reliance investment.

Under the restitution remedy (RES) the buyer can recover any benefit that he has conferred on the seller. In our example, RES corresponds to the contract price. For the same reasons as by REL, RES will be inefficient if the contract price is under $180 since in this case it motivates S to breach even if B1 values the good more than B2. While RES is not efficient in this respect, it can be showed that it operates as the complete contract with respect to R2. It is so because RES makes R2 worthwhile only it the expected value of his reliance investment exceeds its cost, since B1 cannot recover for reliance costs under RES and he must calculate the respective probability of performance and breach. (However, it is not evident that S breaches only if it is efficient. But if so, only RES will lead to the efficient amount of reliance investment, ER and REL will not.)

There remain only three things to mention. First, another possible remedy would be liquidated damages. Under this remedy the buyer can recover in case of breach a sum agreed upon in advance. It can be proved to lead to an optimal allocation of the risk of the ‘efficient breach’ (the appearance of B2) between the parties. But liquidated damages agreement is not enforceable if courts consider the sum too high, penalty-like. Second, the system of contractual damages presupposes that the courts can easily estimate, for example the value of the contract for B1 in case of ER or the reliance costs in case of REL. The information which a court can determine most simply is, of course, the contract price. So, some sort of information (transaction) cost must be taken into account. Finally, we have to answer the question, which contract remedy leads to efficiency in case of breach of contract. In general the answer depends on the relative importance of the breach decision of S, the reliance decision of B1 and the risk allocation between them. The first is optimal under ER, the second under RES, the third most probably under liquidated damages. In the numerical example used before, the first aspect is more important than the second since the difference between B1’s evaluation ($200) and B2’s evaluation ($180) is higher than the $4 loss coming from the inefficient reliance R2. But, again the most expensive remedy is ER because of its information requirements.


The title of Trebilcock’s book is a bit misleading: it is not a traditional legal treatise on state regulations or legal rules limiting freedom of contract. The ambition of the author is to explore the normative implications of current moral and political philosophies (and contrast them with our moral intuition and legal rules in force) regarding to fine details of the law of contracts. In doing this, he is "concerned with congruencies and conflicts between" the philosophical perspectives (p. 16) and shows that neither autonomy-based theories nor different sorts of utilitarianism nor communitarianism can offer alone a coherent theory about freedom of contract. In addition, there are problems which cannot be efficiently dealt with in a private law setting, i.e. the plurality of our theories represent confronting purposes which can be achieved only by a plurality of institutions. (p. 240–261)

As the author stressed in the Preface (p. v), the plan of this book rests on three main considerations. First, "a concern, that much law and economics scholarship is far too unself-critical in assuming that particular normative values are or ought to be vindicated by the law of contracts and the underlying economic institutions of private markets." Second, a critique of the standard treatment of the law of contracts in legal education (let me add, not only in Canada[20] but also in Hungary) "as a body of largely technical, desiccated legal doctrines" without acknowledging the social role and the underlying value conflicts of these institutions. Third, a warning (already in 1993) that the transition of Central and Eastern Europe to capitalism and democracy shall make not only these but also Western countries self-conscious about these values without an unwarranted sense of triumph and complacency "that the end of history has arrived".

I think that the aspiration of Trebilcock, to examine imaginatively and self-critically "the role of the law of contracts in a market economy" has been excellently fulfilled.[21] Hungarian legal scholarship should still today learn from him a lot.


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[1] Craswell 1995: 1.

[2] See Sólyom 2001: 126–140, 426–428, 651–653 and Vékás 1999.

[3] See, e. g. Bíró 1999: 238–250.

[4] Sajó 2002.

[5] Trebilcock 1993. Page numbers in the text refer to this book.

[6] On economic analysis of law in general, see Backhaus 1999, Bouckaert—De Geest 2000, Coleman—Lange 1992, Cooter—Ulen 1999, Hirsch 1999, Newman 1998, Polinsky 1989, Posner 1998, Posner—Parisi 1997, Veljanovski 1990. In Hungarian: Cserne 2001, Sajó—Harmathy 1984, Vékás 1999.

[7] Robert Heilbroner The Making of Economic Society (1975), cited in Trebilcock 1993: 271. n. 2.

[8] For a brief summary see Kronman—Posner 1979: 1–7.

[9] On conceptual problems of transaction costs see Cserne 2001, Appendix A.

[10] It is at least so in the communis opinio both among philosophers and economists and Trebilcock agrees too. However, that is not obviously right. (On this see Cserne 2001, pt 3, Cserne 2001a: 148–149) Economic analysis of law, in its normative version, undoubtedly represents a consequentialist approach.

[11] On paternalism see ch. 7 (pp. 147–163) in Trebilcock 1993.

[12] See Komesar 1994, Posner 1998. ch. 19.

[13] On this see Sajó 2002.

[14] For details, references and counter-arguments see Trebilcock 1993: 18–19, 272.

[15] Cited in Trebilcock 1993: 23.

[16] For a more recent book-length version of her theory see Radin 1996, for its critique: Arrow 1997.

[17] The classic exposition of this problem is Tragic Choices by Calabresi and Bobbitt (1978). See further Elster 1992.

[18] See the same cases from a game-theoretical perspective: Baird—Gertner—Picker 1994,. ch. 5–6.

[19] The numbers in the following example are from Polinsky 1989, ch. 5 and 8.

[20] For a recent Hungarian view on current legal problems in Canada as reflected in the jurisprudence, see Varga 2002.

[21] As approval, see the review articles: Ayres 1995, Brownsword 1995, Rakoff 1996.

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