A Matter of Interpretation: Ambiguous Contracts and Liquidated Damages

Simon Grant, Jeff Kline and John Quiggin

No 151198, Risk and Sustainable Management Group Working Papers from University of Queensland, School of Economics

Abstract: We focus on syntactic aspects of differential awareness that give rise to contractual disputes. Boundedly rational parties use a common language, but do not share a common understanding of the world, leading to ambiguity in both syntactic and semantic forms. In contractual relationships, ambiguity leads to disagreement and disputes. We show that the agents may prefer simpler less ambiguous contracts when facing potential disputes. In particular, parties may prefer liquidated damages provisions to contractual terms that specify a more complex risk allocation.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 23
Date: 2011-09-20
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A matter of interpretation: Ambiguous contracts and liquidated damages (2014)
Working Paper: A Matter of Interpretation: Ambiguous Contracts and Liquidated Damages (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uqsers:151198

DOI: 10.22004/ag.econ.151198

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