Vague Terms: Contracting when Precision in Terms is Infeasible
AbstractThis article considers the consequence of incomplete contracts that arise due to difficulties in precisely describing potentially relevant contingencies. Unlike much of the literature, this article concludes that the resulting incompleteness could often be immaterial with respect to economic efficiency. Indeed, attempts to "improve" matters by increasing the accuracy with which the courts determine which events occurred can, in fact, be welfare reducing, casting doubt on the view that greater judicial accuracy is always beneficial.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 164 (2008)
Issue (Month): 1 (March)
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Find related papers by JEL classification:
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
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- Ola Kvaløy & Trond E. Olsen, 2009.
"Endogenous Verifiability and Relational Contracting,"
American Economic Review,
American Economic Association, vol. 99(5), pages 2193-2208, December.
- Kvaløy, Ola & Olsen, Trond E., 2004. "Endogenous Verifiability in Relational Contracting," Discussion Papers 2004/20, Department of Business and Management Science, Norwegian School of Economics.
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