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Rigidity, Discretion, and the Costs of Writing Contracts
Abstract
In this paper we model contract incompleteness “from the ground up,” as arising endogenously from the costs of describing the environment and the parties' behavior. Optimal contracts may exhibit two forms of incompleteness: discretion, meaning that the contract does not specify the parties' behavior with sufficient detail; and rigidity, meaning that the parties' obligations are not sufficiently contingent on the external state. The model sheds light on the determinants of rigidity and discretion in contracts, and yields rich predictions regarding the impact of changes in the exogenous parameters on the degree and form of contract incompleteness.
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Citations
Cited by
Reputations, Relationships, and Contract Enforcement
MacLeod, W. B. (2007) · Journal of Economic Literature · doi:10.1257/jel.45.3.595 · Cited by 384
Trade Agreements as Endogenously Incomplete Contracts
Horn, H., Maggi, G., & Staiger, R. W. (2010) · American Economic Review · doi:10.1257/aer.100.1.394 · Cited by 301
Self-citationFormal and Informal Contracting: Theory and Evidence
Gil, R., & Zanarone, G. (2017) · Annual Review of Law and Social Science · doi:10.1146/annurev-lawsocsci-110316-113413 · Cited by 56
Metadata
- Authors
- Battigalli, P., & Maggi, G.
- Venue
- American Economic Review
- Publisher
- American Economic Association
- Published
- 2002-08-01
- Volume
- 92
- Issue
- 4
- Pages
- 798-817
- ISSN
- 0002-8282 (ISSN-L)
- OpenAlex
- W1990651069
- Cited by
- 193
- References
- 0
- FWCI
- 11.17
- Type
- journal article
- Language
- en
- Open access
- closed
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- Battigalli, P., & Maggi, G. (2002). Rigidity, Discretion, and the Costs of Writing Contracts. American Economic Review. https://doi.org/10.1257/00028280260344470
Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
