This chapter addresses the function that negotiations and contracts fulfil in society (and in law) and explores the extent to which consensus is a source of legitimacy for legal effects (‘justice of consensus’) – including the negative side, the limits of the legitimacy of consensus. More in detail, this chapter is about three main sub-questions: justification(s) for freedom of contact and of its limitations; which kinds of particular limitations may be legitimate, namely whether and when redistribution is a legitimate goal, and how much rationality can be assumed or not and which reactions are advisable in case of biases. One particular prerequisite for ‘free’ decision-making – free in a meaningful way, that is, information – is dealt with in Chapter 12.

Among the most revolutionary findings of twentieth-century contract theory is that the divergence between spot contracts – discrete agreements for immediate exchanges – and the long-term, co-operative contracts now generally called relations or relational contracts may be just as great as (or even greater than) the divergence between relational contracts and organizations such as companies. Relational contracts, moreover, are often situated in larger networks, that is, multi-party arrangements. Such contracts are, in practice, generally the basis of a stable organizational arrangement. Thus, rather than a single dichotomy between the market and firm forms (see Chapter 19 and Coase’s paper of 1937 – and more generally for the firm and its embeddedness, see Chapters 20–22), hybrids and intermediate solutions become a core issue of consideration, suggesting functional neighbourhoods that depart considerably from those suggested by the traditional legal categorizations.

When this book seeks to encompass the theoretical foundations of recent private law theory (private law understood in a broad sense, encompassing questions of regulation and rule-setting in particular), it takes a stance on legal theory that draws heavily on broad social theory (i.e. on theory developed for the most part outside legal scholarship). It seeks to combine it with legal theory in the narrow (traditional) sense, looking at law (in its changing structure) namely with tools of legal philosophy such as logic or ethics and from within legal scholarship. In this, ‘The Inside and the Outside of Law?’ as a title refers to a topic for discussion rather than making a statement. Private law theory as proposed by legal scholars will be combined with concepts drawn from law and economics, legal philosophy, sociology and the behavioural sciences; constitutionalism combined with considerations of consensus and its intrinsic justification – all in relation to markets, risks, persons and organizations.

This chapter is the third of a series on the concept and conceptualization of the corporation and the role that core actors play in it. It discusses the power and the limitations that can be observed in the player that, in mainstream doctrinal and economic conceptualization, is seen as the ultimate risk and decision taker. It deals with the power and the limitations that apply to the shareholder in their various decisions, most notably in the decision to invest or disinvest and decisions in the general meetings. While the texts discussed both refer directly to corporations as organizations, one of them decidedly takes a more general view and equally includes and refers to other types of organizations, also of the political sphere – types to which the second text could at least be related.

This chapter concludes the section on rule-setting and ‘private law beyond the state’. With this concept, the question is also raised as to whether particular areas de facto constitute or even should constitute a sphere ‘outside the law’. One of the most striking examples in this respect can be found with the Internet and in particular with clashes of opinion in the digital sphere (see also Chapter 16). The most direct conflict might well be that of hate speech (and other insults, threats etc.)

Information is a valuable resource: Knowledge is power. And yet it occupies a slum dwelling in the town of economics.’ So begins George Stigler’s article early in the 1960s, often considered to be the start of information economics, written one year after his Chicago colleague Ronald Coase published his seminal paper on ‘Social Cost’, often seen as the start of transaction cost and institutional economics. Contemporaneous legal scholarship had a similar blind spot regarding information as an asset; that is, at least until the last three decades of the twentieth century, during which it came to dominate regulation theory in private law. Throughout the preceding decades, competition issues had been the central occupation of economic theory, and practices that would restrict competition the core target of market regulation.

Is it possible to reduce the topic of ‘Economics and Private Law Institutions’ to three core ideas? This chapter cannot even summarize, let alone substitute for a treatise on law and economics or on new institutional economics (see fn. 16). Three developments – and their founding texts as well as their contexts – stand out, however, as the foundations of the relationship between economics and private law (theory).

The chapter discusses the division of ownership and control, probably the most striking feature of large-scale economic organization in our time. This refers to the fact that the large company/corporation is owned by the totality of the shareholders, but the structure and assets ‘owned’ are managed and decided on primarily by the board of directors. Thus, ownership and decision power on the property are systematically in different hands – in law, but often also de facto. This fully applies at least to corporations with dispersed ownership, especially those listed on exchanges or alternative trading venues. Corporations of course do not only affect shareholders and managers, but at least two other groups. These are stakeholders in the more concrete sense, that is, parties that have a relatively concrete interest, typically supported by legal norms, namely contractual rights, in the corporation – labour and creditors.

The theory of private law must take into account the findings of different disciplines in order to develop an adequate description of society. It is therefore beyond question today that the findings of law and economics hold important insights for legislation and the application of law. The survey of a single neighbouring discipline, however, necessarily leads to a reduction in complexity. This reduction in complexity is helpful for developing theoretical models, but insufficient for adequately coping with legal problems.

The second part of this book is the first one in which substantive problems of private law are scrutinized, not primarily disciplines – all chapters deal with the ‘constitutionalization’ of private law, understood in a broad sense. This first chapter focuses on societal order and private law; that is, on social ordering. Its concern is the ‘justified’ distribution of rights, duties and opportunities (particularly via law) and, more specifically, the role of private law in bringing about such a distribution.