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Legal uncertainty and contractual innovation

  • Yaron Leitner
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    Although innovative contracts are important for economic growth, when firms face uncertainty as to whether contracts will be enforced, they may choose not to innovate. Legal uncertainty can arise if a judge interprets the terms of a contract in a way that is antithetical to the intentions of the parties to the contract. Or sometimes a judge may understand the contract but overrule it for other reasons. How does legal uncertainty affect firms’ decisions to innovate? In “Legal Uncertainty and Contractual Innovation,” Yaron Leitner explores issues related to legal uncertainty, particularly the amount of discretion judges have and the types of evidence they consider.

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    File URL: http://www.philadelphiafed.org/research-and-data/publications/business-review/2005/q2/Q2_05_Leitner.pdf
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    Article provided by Federal Reserve Bank of Philadelphia in its journal Business Review.

    Volume (Year): (2005)
    Issue (Month): Q2 ()
    Pages: 26-32

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    Handle: RePEc:fip:fedpbr:y:2005:i:q2:p:26-32
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    1. B. Douglas Bernheim & Michael D. Whinston, 1997. "Incomplete Contracts and Strategic Ambiguity," Harvard Institute of Economic Research Working Papers 1787, Harvard - Institute of Economic Research.
    2. Luca Anderlini & Leonardo Felli & Andrew Postlewaite, 2003. "Should courts always enforce what contracting parties write?," LSE Research Online Documents on Economics 3593, London School of Economics and Political Science, LSE Library.
    3. 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.
    4. Julian R. Franks & Kjell G. Nyborg & Walter N. Torous, 1996. "A Comparison of UK, US and German Insolvency Codes," Financial Management, Financial Management Association, vol. 25(3), Fall.
    5. Shurojit Chatterji & Dragan Filipovich, 2004. "Ambiguous Contracting: Natural Language and Judicial Interpretation," Econometric Society 2004 North American Winter Meetings 419, Econometric Society.
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