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On the Writing and the Interpretation of Contracts

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  • Steven Shavell

Abstract

The major theme of this article is that the interpretation of contracts -- their possible amplification, correction, and modification by adjudicators -- is in the interests of contracting parties. The general reasons are (a) that interpretation may improve on otherwise imperfect contracts; and (b) that the prospect of interpretation allows parties to write simpler contracts and thus to conserve on contracting effort. A method of interpretation is defined as a function whose argument is the written contract and whose value is another contract, the interpreted contract, which is what actually governs the parties' joint enterprise. It is shown that interpretation is superior to enforcement of contracts as written, and the optimal method of interpretation is analyzed.

Suggested Citation

  • Steven Shavell, 2003. "On the Writing and the Interpretation of Contracts," NBER Working Papers 10094, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:10094
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    References listed on IDEAS

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    1. William P. Rogerson, 1984. "Efficient Reliance and Damage Measures for Breach of Contract," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 39-53, Spring.
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    13. repec:cdl:ucsdec:qt2wh8m7bv is not listed on IDEAS
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    Cited by:

    1. Anderlini Luca & Felli Leonardo & Postlewaite Andrew, 2011. "Should Courts Always Enforce What Contracting Parties Write?," Review of Law & Economics, De Gruyter, vol. 7(1), pages 14-28, February.
    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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    More about this item

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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