A Matter of Interpretation: Bargaining over Ambiguous Contracts
نویسندگان
چکیده
We present a formal treatment of contracting in the face of ambiguity. The central idea is that boundedly rational individuals will not always interpret the same situation in the same way. More speci cally, even with well de ned contracts, the precise actions to be taken by each party to the contract might be disputable. Taking this potential for dispute into account, we analyze the e ects of ambiguity on contracting. We nd that risk averse agents will engage in ambiguous contracts for risk sharing reasons. We provide an application where ambiguity motivates the use of a liquidated damages contract. JEL Classi cation: D80, D82
منابع مشابه
TITLE: A Matter of Interpretation: Ambiguous Contracts and Liquidated Damages Authors:
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 cont...
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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 cont...
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