IDEAS home Printed from https://ideas.repec.org/a/rje/randje/v24y1993ispringp126-146.html
   My bibliography  Save this article

The Efficiency of Incomplete Contracts: An Empirical Analysis of Air Force Engine Procurement

Author

Listed:
  • Keith J. Crocker
  • Kenneth J. Reynolds

Abstract

This article examines the incentives of contractual parties to design agreements that are left intentionally incomplete with regard to future duties or contingencies. More complete contracts mitigate ex post opportunism and the associated distortions in unobservable investment, but at the cost of additional resources expended in ex ante design. The optimal degree of contractual incompleteness involves a tradeoff between these opposing forces, the magnitudes of which may be predicted based on observable characteristics of the transactors and of the exchange environment. The resulting hypotheses are tested using panel data on the pricing procedures using in Air Force engine procurement contracts. We conclude that the degree of contractual completeness chosen in practice reflects a desire by the parties to minimize the economic costs associated with contractual exchange.

Suggested Citation

  • Keith J. Crocker & Kenneth J. Reynolds, 1993. "The Efficiency of Incomplete Contracts: An Empirical Analysis of Air Force Engine Procurement," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 126-146, Spring.
  • Handle: RePEc:rje:randje:v:24:y:1993:i:spring:p:126-146
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0741-6261%28199321%2924%3A1%3C126%3ATEOICA%3E2.0.CO%3B2-T&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    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:rje:randje:v:24:y:1993:i:spring:p:126-146. 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: the person in charge (email available below). General contact details of provider: https://www.rje.org .

    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.