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Ambiguous Contracting: Natural Language and Judicial Interpretation

  • Shurojit Chatterji
  • Dragan Filipovich

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

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 419.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nawm04:419
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  1. Andrew Postlewaite, 2007. "Courts of Law and Unforeseen Contingencies," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(3), pages 662-684, October.
  2. Maskin, Eric & Tirole, Jean, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 83-114, January.
  3. Anderlini, Luca & Felli, Leonardo, 1998. "Describability and agency problems," European Economic Review, Elsevier, vol. 42(1), pages 35-59, January.
  4. Oliver Hart & John Moore, 1998. "Foundations of incomplete contracts," LSE Research Online Documents on Economics 19354, London School of Economics and Political Science, LSE Library.
  5. Bernheim, B Douglas & Whinston, Michael D, 1998. "Incomplete Contracts and Strategic Ambiguity," American Economic Review, American Economic Association, vol. 88(4), pages 902-32, September.
  6. Luis Corchón & Sandeep Baliga & Tomas Sjöström, 1995. "The Theory Of Implementation When The Planner Is A Player," Working Papers. Serie AD 1995-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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