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Cognition and Incomplete Contracts

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  • Jean Tirole

Abstract

Thinking about contingencies, designing covenants, and seeing through their implications is costly. Parties to a contract accordingly use heuristics and leave it incomplete. The paper develops a model of limited cognition and examines its consequences for contractual design. (JEL D23, D82, D86, L22)

Suggested Citation

  • Jean Tirole, 2009. "Cognition and Incomplete Contracts," American Economic Review, American Economic Association, vol. 99(1), pages 265-294, March.
    • Handle: RePEc:aea:aecrev:v:99:y:2009:i:1:p:265-94
    Note: DOI: 10.1257/aer.99.1.265
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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