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Courts of Law and Unforeseen Contingencies Author info | Abstract | Publisher info | Download info | Related research | Statistics Luca Anderlini () (Department of Economics, Georgetown University)
Leonardo Felli () (Department of Economics, London School of Economics)
Andrew Postlewaite () (Department of Economics, University of Pennsylvania)
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registered author(s):
We study a contracting model with unforeseen contingencies in which the court is an active player. Ex-ante, the contracting parties cannot include the risky unforeseen contingencies in the contract they draw up. Ex-post the court observes whether an unforeseen contingency occurred, and decides whether to void or uphold the contract. If the contract is voided by the court, the parties can renegotiate a new agreement ex-post. There are two effects of a court that voids more contracts. The parties’ incentives to undertake relationship-specific investment are reduced, while the parties enjoy greater insurance against the unforeseen contingencies which the ex-ante contract cannot take into account. In this context, we are able to characterize fully the optimal decision rule for the court. The behavior of the optimal court is determined by the tradeoff between the need for incentives and the gains from insurance that voiding in some circumstances offers to the agents.
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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number
06-001.
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Length: 33 pages
Date of creation: 01 Mar 2001Date of revision:
01 Jan 2006Handle: RePEc:pen:papers:06-001Contact details of provider: Postal: 3718 Locust Walk, Philadelphia, PA 19104 Phone: 215-898-9992 Fax: 215-573-2378 Email: Web page: http://economics.sas.upenn.edu/pier More information through EDIRC
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Keywords: Courts of Law ; Unforeseen Contingencies ; Precedents ; Incentives ; Insurance ; Other versions of this item:
Article Paper Luca Anderlini, Leonardo Felli & Andrew Postlewaite, .
"Courts of Law and Unforeseen Contingencies ,"
Working Papers
gueconwpa~03-03-26, Georgetown University, Department of Economics.
[Downloadable!] Anderlini, Luca & Felli, Leonardo & Postlewaite, Andrew, 2001.
"Courts of Law and Unforeseen Contingencies ,"
CEPR Discussion Papers
2835, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Luca Anderlini & Leonardo Felli & Andrew Postlewaite, 2003.
"Courts of Law and Unforeseen Contingencies ,"
STICERD - Theoretical Economics Paper Series
447, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
[Downloadable!] Find related papers by JEL classification: C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
This paper has been announced in the following NEP Reports :
References listed on IDEAS 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.: Nabil I. Al-Najjar & Luca Anderlini & Leonardo Felli, 2003.
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references 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.)
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Luca Anderlini, Leonardo Felli, & Andrew Postlewaite, .
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[Downloadable!] Luca Anderlini & Leonardo Felli & Andrew Postlewaite, 2006.
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