The Law of Impersonal Transactions: Meaning and Difficulties

Abstract: Most economic interactions happen in a context of sequential exchange in which innocent third parties suffer information asymmetry with respect to previous originative contracts. The law reduces transaction costs by protecting these third parties; but, to avoid too much damage to property, it preserves some element of consent by property right holders (e.g., they choose the agent in the originative contract). This requires judicial verifiability of originative contracts, which is obtained either as an automatic byproduct of transactions or, when these would have remained private, by requiring them to be made public. This provides the market with legal commodities that make impersonal trade viable. However, it is taking Western law more than a thousand years to generalize this legal commoditization paradigm, due to path dependency—the law first developed for personal trade—; sunk costs—jurists still think in personal terms—; and vested interests—luddite legal professionals confront weak public bureaucracies—.