Differential awareness, ambiguity, and incomplete contracts: A model of contractual disputes

Simon Grant, J. Jude Kline and John Quiggin

Journal of Economic Behavior & Organization, 2012, vol. 82, issue 2, 494-504

Abstract: We focus on aspects of differential awareness that give rise to contractual disputes. Parties to a contract are boundedly rational as the state space available to them is coarser than the complete state space. Hence, they may disagree as to which state of the world has occurred, and therefore as to what actions are required by the contract. Such disagreement leads to disputes. We show that the agents may prefer simpler less ambiguous contracts when facing potential disputes.

Keywords: Ambiguity; Bounded rationality; Expected uncertain utility; Incomplete contracts (search for similar items in EconPapers)
JEL-codes: D80 D82 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (9)

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Working Paper: Differential awareness, ambiguity, and incomplete contracts: a model of contractual disputes? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:82:y:2012:i:2:p:494-504

DOI: 10.1016/j.jebo.2012.02.021

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