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Solomon's Knot by Robert Cooter, Hans-Bernd Schäfer

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Chapter 15

Legalize Freedom—Conclusion

Sustained growth occurs through business ventures that innovate. Launching a venture poses a problem of trust between innovators with new ideas and financiers with capital (the double trust dilemma of development). To create trust, an effective legal framework insures that the creators of wealth can keep much of it (the property principle for innovation), people can commit to keeping their promises (the contract principle for coordination), and entrepreneurs can enter most lines of business and choose their firm’s organization from a menu of legal templates (principle of organizational liberty). Property, contracts, and corporate law provide the legal framework to overcome distrust and launch innovative ...

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