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Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In

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Oliver Hart
John Moore

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Abstract

We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i.e., these are ruled out'. Ex post, they freely bargain over outcomes on the list, i.e., the contract specifies no mechanism to structure their choice; in this sense outcomes on the list are not ruled in'. A loose' contract (long list) maximizes flexibility but may interfere with ex ante investment incentives. When these incentives are important enough, the parties may write a tight' contract (short list), even though this leads to ex post inefficiency.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10397.

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Date of creation: Mar 2004
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Handle: RePEc:nbr:nberwo:10397

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D8 - Microeconomics - - Information, Knowledge, and Uncertainty
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sudipto Bhattacharya & Sergei Guriev, 2008. "Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes," Working Papers w0118, Center for Economic and Financial Research (CEFIR). [Downloadable!]
    Other versions:
  2. Guillaume Haeringer & Sophie Bade & Ludovic Renou, 2006. "Bilateral Commitment," Working Papers 2006.75, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  3. Oliver Hart & John Moore, 2006. "Contracts as Reference Points," NBER Working Papers 12706, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Surajeet Chakravarty, 2005. "Resolving Contractual Disputes: Arbitration vs Mediation," The Centre for Market and Public Organisation 05/117, Department of Economics, University of Bristol, UK. [Downloadable!]
  5. Sudipto Bhattacharya & Sergei Guriev, 2004. "Knowledge Disclosure, Patents and Optimal Organization of Research and Development," STICERD - Theoretical Economics Paper Series /2004/478, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
    Other versions:
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