Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In

Oliver Hart and John Moore

No 2032, Harvard Institute of Economic Research Working Papers from Harvard - Institute of Economic Research

Abstract: We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i. e. , these are “ruled out”. Ex post, they freely bargain over outcomes on the list, i. e. , the contract specifies no mechanism to structure their choice; in this sense outcomes on the list are not “ruled in”. A “loose” contract (long list) maximizes flexibility but may interfere with ex ante investment incentives. When these incentives are important enough, the parties may write a “tight” contract (short list), even though this leads to ex post inefficiency.

Date: 2004
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Related works:
Working Paper: AGREEING NOW TO AGREE LATER: Contracts that Rule Out but do not Rule In (2004)
Working Paper: Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In (2004)
Working Paper: Agreeing now to agree later: contracts that rule out but do not rule in (2004)
Working Paper: Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In (2004)
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