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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

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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Bibliographic Info

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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Citations

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Cited by:
  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).
  2. 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.
  3. Sophie Bade & Guillaume Haeringer & Ludovic Renou, 2008. "Bilateral Commitment," Discussion Papers in Economics 08/20, Department of Economics, University of Leicester.
  4. Sudipto Bhattacharya & Sergei Guriev, 2004. "Knowledge disclosure, patents and optimal organization of research and development," LSE Research Online Documents on Economics 19315, London School of Economics and Political Science, LSE Library.
  5. Oliver Hart & John Moore, 2007. "Contracts as Reference Points," ESE Discussion Papers 170, Edinburgh School of Economics, University of Edinburgh.
  6. Garrouste, Pierre & Saussier, Stephane, 2005. "Looking for a theory of the firm: Future challenges," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 178-199, October.
  7. Chaserant, Camille, 2007. "Les fondements incomplets de l’incomplétude : Une revue critique de la théorie des contrats incomplets," L'Actualité Economique, Société Canadienne de Science Economique, vol. 83(2), pages 227-253, juin.
  8. Ricard Gil & Jordi Mondria, 2011. "Introducing managerial attention allocation in incentive contracts," SERIEs, Spanish Economic Association, vol. 2(3), pages 335-358, September.
  9. Shin, Dongsoo, 2008. "Information acquisition and optimal project management," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 1032-1043, July.

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