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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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Abstract

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: http://qje.oxfordjournals.org/
Additional Information: © 1994 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory
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)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 27 Mar 2008 11:37
URL: http://eprints.lse.ac.uk/3958/

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