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Incomplete written contracts: undescribable states of nature

Anderlini, Luca and Felli, Leonardo (1994) Incomplete written contracts: undescribable states of nature. Quarterly Journal of Economics, 109 (4). pp. 1085-1124. ISSN 0033-5533

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Identification Number: 10.2307/2118357


This paper explores the extent to which the incompleteness of contracts can be attributed to their formal nature: the form, usually written, that contracts are required to take to be enforceable in a court of law by legal prescription, common practice, or simply the contracting parties' will. We model the formal nature of state-contingent contracts as the requirement that the mapping from states of the world to the corresponding outcomes must be of an algorithmic nature. It is shown that such algorithmic nature, although by itself is not enough to generate incomplete contracts, when paired with a similar restriction on the contracting parties' selection process yields endogenously incomplete optimal contracts.

Item Type: Article
Official URL:
Additional Information: © 1994 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
Divisions: Financial Markets Group
Subjects: H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory
Date Deposited: 27 Mar 2008 11:37
Last Modified: 18 May 2024 16:03

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