Berkeley Program in Law and Economics
Theoretical Approximation and Experimental Evaluation of Market Functioning when Transactions are Regulated by Adhesion Contracts
- Author(s): Salazar, Diego F.
- et al.
By using an economic model this paper describes and analyzes different forms of equilibrium within the market of the adhesion contracts where information is asymmetric and the agreement drafters decide which type of contract to offer considering that information is expensive for those who adhere. Under such conditions equilibriums are met in which contracts exist with the minimum possible quality associated to a price. In line with the economic analysis of law, the author concludes that the market is unable to correct inefficient agreements and this produces a limitation to the freedom of contract. This situation requires the implementation of controls over the contents of the adhesion contracts in order to ameliorate this result. Finally, there is an experimental analysis of the fundamental theoretic results.