Overcoming Contractual Incompleteness: The Role of Guiding Principles / David Frydlinger, Oliver D. Hart.

Format:

Book

Author/Creator:

Frydlinger, David.

Contributor:

National Bureau of Economic Research.

Hart, Oliver D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26245.

NBER working paper series no. w26245

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Overcoming Contractual Incompleteness

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

We consider a buyer and seller who contract over a service. The contract encourages investment and provides a reference point for the transaction. In normal times the contract works well. But with some probability an abnormal state occurs and the service must be modified. The parties expect each other to behave "reasonably", but given self-serving biases their views of reasonableness may not coincide, leading to aggrievement and deadweight losses. The adoption by the parties of guiding principles such as loyalty and equity in their contract can help. We provide supporting evidence in the form of case studies and interviews.

Notes:

Print version record

September 2019.