Vague Terms: Contracting when Precision in Terms is Infeasible

Benjamin Hermalin

Journal of Institutional and Theoretical Economics (JITE), 2008, vol. 164, issue 1, 76-94

Abstract: This article considers the consequence of incomplete contracts that arise due to difficulties in precisely describing potentially relevant contingencies. Unlike much of the literature, this article concludes that the resulting incompleteness could often be immaterial with respect to economic efficiency. Indeed, attempts to "improve" matters by increasing the accuracy with which the courts determine which events occurred can, in fact, be welfare reducing, casting doubt on the view that greater judicial accuracy is always beneficial.

JEL-codes: D86 K12 K41 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (4)

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