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Ambiguous Contracting: Natural Language and Judicial Interpretation

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  • Shurojit Chatterji
  • Dragan Filipovich

Abstract

We study the relationship between ambiguity (which comes into the picture since contracts have to be written in natural language), and contractual incompleteness. The contracting process is modelled as a signalling game between the parties and the judge, with the contract as the signal. The judge is assumed to be bound by the content of the contract (in as far as it can be ascertained unambiguously). Two kind of examples are presented: The first set of examples shows how ambiguity can lead to incompleteness. Here incompleteness is a way of hedging against adverse judgements on the part of an imperfectly informed judge. The remaining example illustrates a sort of converse intuition: It shows how incompleteness might lead the contracting parties to write ambiguous contracts in order to afford a relatively well-informed judge freedom to enforce the parties'will

Suggested Citation

  • Shurojit Chatterji & Dragan Filipovich, 2004. "Ambiguous Contracting: Natural Language and Judicial Interpretation," Econometric Society 2004 North American Winter Meetings 419, Econometric Society.
    • Handle: RePEc:ecm:nawm04:419
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    File URL: http://repec.org/esNAWM04/up.5352.1049151224.pdf
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    References listed on IDEAS

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    6. Baliga, Sandeep & Corchon, Luis C. & Sjostrom, Tomas, 1997. "The Theory of Implementation When the Planner Is a Player," Journal of Economic Theory, Elsevier, vol. 77(1), pages 15-33, November.
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    Cited by:

    1. Yaron Leitner, 2005. "Legal uncertainty and contractual innovation," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 26-32.
    2. Mitchell Berlin & Yaron Leitner, 2005. "Courts and contractual innovation: a preliminary analysis," Working Papers 05-27, Federal Reserve Bank of Philadelphia.

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    Keywords

    incomplete contracts; natural language;

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