Abstract

Various writers point out that accepting the terms of a contract does not imply consent to the background conditions of this contract. This is an important critical insight allowing for a critical perspective on the principle of free contract, according to which the state should not interfere with what adult agents contractually agree upon. In this paper I argue that the practical relevance of this critical insight depends on the availability of answers to three questions: (1) Which are the core features of baseline background conditions supporting a well-ordered labor market enhancing economic welfare? (2) In which cases and for which reasons are non-market institutions needed in order to support these features? (3) Under which conditions and at which levels can collective mechanisms be expected to support adequate non-market institutions ‘curing market failure’? Some of the core properties of labor markets and labor contracts are discussed which need to be taken into account in attempts to answer these questions, most notably problems of contract enforcement, market failure and collective action.