IDEAS home Printed from https://ideas.repec.org/a/oup/jleorg/v15y1999i2p468-86.html
   My bibliography  Save this article

Limited Attention and the Optimal Incompleteness of Contracts

Author

Listed:
  • Gifford, Sharon

Abstract

A decision-maker's limited attention is allocated between writing new contracts and directing current contracts. More time spent writing a new contract makes the contract more complete. A more complete contract performs better and generates higher returns. The optimal allocation of attention implies two types of contracts, relational and market. A relational contract, which is directed periodically, is optimally less complete than a market contract, which is not directed. The completeness of relational contracts decreases with the ability to direct contracts, since changing circumstances can be dealt with later. In addition, the completeness of relational contracts increases with the ability to write new contracts, since more complete relational contracts are directed less frequently and leave more time for writing new contracts. The optimal allocation of attention to relational contracts is socially efficient even though it does not maximize the discounted expected returns of the firm. Copyright 1999 by Oxford University Press.

Suggested Citation

  • Gifford, Sharon, 1999. "Limited Attention and the Optimal Incompleteness of Contracts," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(2), pages 468-486, July.
    • Handle: RePEc:oup:jleorg:v:15:y:1999:i:2:p:468-86
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nicolai J. Foss, 2010. "Bounded Rationality and Organizational Economics," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 14, Edward Elgar Publishing.
    2. Gifford, Sharon, 1999. "Efficient moral hazard," Journal of Economic Behavior & Organization, Elsevier, vol. 40(4), pages 427-442, December.
    3. Kirsten Foss & Nicolai J. Foss & Peter G. Klein, 2006. "Original and Derived Judgment An Entrepreneurial Theory of Economic Organization," DRUID Working Papers 06-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    4. Takii, Katsuya, 2009. "Limited attention, interaction and the gradual adjustment of a firm's decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 345-362, February.
    5. Nicolai Foss, 2001. "Bounded Rationality in the Economics of Organization: Present Use and (Some) Future Possibilities," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 5(3), pages 401-425, September.
    6. Sharon Gifford, 1994. "A Review of Milgrom and Roberts'sEconomics, Organization and Management," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(2), pages 407-436, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:jleorg:v:15:y:1999:i:2:p:468-86. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/jleo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.