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On the Writing and the Interpretation of Contracts

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  • Steven Shavell
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    Abstract

    The major theme of this article is that the interpretation of contracts is in the interests of contracting parties. The general reasons are (a) that interpretation may improve on otherwise imperfect contracts; and (b) that the prospect of interpretation allows parties to write simpler contracts and thus to conserve on contracting effort. A method of interpretation is defined as a function whose argument is the written contract and whose value is another contract, the interpreted contract, which is what actually governs the parties' joint enterprise. It is shown that interpretation is superior to enforcement of contracts as written, and the optimal method of interpretation is analyzed. Copyright 2006, Oxford University Press.

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    File URL: http://hdl.handle.net/10.1093/jleo/ewj017
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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Journal of Law, Economics, and Organization.

    Volume (Year): 22 (2006)
    Issue (Month): 2 (October)
    Pages: 289-314

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    Handle: RePEc:oup:jleorg:v:22:y:2006:i:2:p:289-314

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    Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
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    Cited by:
    1. Kvaløy, Ola & Olsen, Trond, 2012. "The Tenuous Relationship between Effort and Performance Pay," UiS Working Papers in Economics and Finance 2012/11, University of Stavanger.
    2. Luca Anderlini & Leonardo Felli & Andrew Postlewaite, 2006. "Should Courts always Enforce what Contracting Parties Write?," CESifo Working Paper Series 1847, CESifo Group Munich.
    3. 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.
    4. A. Mitchell Polinsky & Steven Shavell, 2005. "Economic Analysis of Law," Discussion Papers 05-005, Stanford Institute for Economic Policy Research.
    5. Kvaløy, Ola & Olsen, Trond, 2012. "Incentive provision when contracting is costly," UiS Working Papers in Economics and Finance 2012/16, University of Stavanger.

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