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Efficiently Imprecise Contracts

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  • Toru Suzuki

    (University of Technology Sydney)

Abstract

Actual contracts are often written in an imprecise manner. This paper introduces a formal writing cost framework in which the language of a contract, i.e., natural language, is explicitly modeled with predicate logic. It is shown that even if any obligation is contractible and describable by the language, the equilibrium contract can exhibit two kinds of impreciseness: (i) descriptive impreciseness, i.e., a contract leaves some relevant detail of the duty unmentioned, and (ii) semantic impreciseness, i.e., a contract uses some imprecise words leaving room for interpretation. Contractual impreciseness can persist even under a vanishingly small writing cost. Some novel comparative statics and other economic applications are provided.

Suggested Citation

  • Toru Suzuki, 2020. "Efficiently Imprecise Contracts," Working Paper Series 2020/07, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ecowps:2020/07
    as

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    File URL: https://www.uts.edu.au/sites/default/files/2020-09/Working%20Paper_%20Toru%20Suzuki.pdf
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    References listed on IDEAS

    as
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    Keywords

    A foundation of incomplete contract; contractual impreciseness; writing cost; predicate logic;
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