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Freedom of Contract and the Laws of Entropy

Francesco Parisi
Supreme Court Economic Review
Vol. 10, The Rule of Law, Freedom, and Prosperity (2003), pp. 65-90
Stable URL: http://www.jstor.org/stable/1147138
Page Count: 26
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Freedom of Contract and the Laws of Entropy
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Abstract

In this paper I consider the twofold relationship between freedom of contract and entropy in property. Recent literature on property fragmentation suggests that property is subject to a fundamental law of entropy, leading towards increasing property fragmentation. After considering the legal responses to the problem of entropy, I revisit the above debate considering the relevance of freedom of contract to achieve optimal outcomes in a world of imperfect information and positive transaction costs. In such a context, I discern two analytically distinct ways in which freedom of contract contributes to minimizing the problems of entropy. I conclude that entropy is not an ontological problem, but is often the byproduct of the uncoordinated use of institutional and legal constraints on free contractual arrangements.

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