More is Less (Elements in Law, Economics and Politics) - Softcover

Halonen-Akatwijuka, Maija

 
9781009396073: More is Less (Elements in Law, Economics and Politics)
Softcover
ISBN 10: 1009396072 ISBN 13: 9781009396073
Publisher: Cambridge University Press, 2024

Synopsis

Why are contracts incomplete? Transaction costs and bounded rationality cannot be a total explanation since states of the world are often describable, foreseeable, and yet are not mentioned in a contract. Asymmetric information theories also have limitations. We offer an explanation based on 'contracts as reference points'. Including a contingency of the form, 'The buyer will require a good in event E', has a benefit and a cost. The benefit is that if E occurs there is less to argue about; the cost is that the additional reference point provided by the outcome in E can hinder (re)negotiation in states outside E. We show that if parties agree about a reasonable division of surplus, an incomplete contract is strictly superior to a contingent contract. If parties have different views about the division of surplus, an incomplete contract can be superior if including a contingency would lead to divergent reference points.

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Publisher
Cambridge University Press
Publication date
2024
Language
English
ISBN 10 
1009396072
ISBN 13 
9781009396073
Binding
Paperback
Number of pages
34