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Agreeing now to agree later: contracts that rule out but do not rule in

Hart, Oliver and Moore, John (2004) Agreeing now to agree later: contracts that rule out but do not rule in. TE, 472. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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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 out". 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.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk
Additional Information: © 2004 the authors
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
K Law > K Law (General)
Journal of Economic Literature Classification System: K - Law and Economics > K1 - Basic Areas of Law > K12 - Contract Law
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty
D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 472
Date Deposited: 11 Jul 2008 13:34
URL: http://eprints.lse.ac.uk/19316/

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