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Contradiction as a form of Contractual Incompleteness

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  • Dana Heller
  • Ran Spiegler

Abstract

A simple model is presented, in which contradictory instructions are viewed as a type of contract incompleteness. The model provides a complexity‐based rationale for contradictory instructions. If there are complexity bounds on the contract, there may be an incentive to introduce contradictions, leaving for another agent the task of interpreting them. The optimal amount of contradictions depends on the complexity bound, the conflict of interests with the interpreter and the institutional constraints on his interpretations. In particular, a higher complexity bound may result in a larger amount of contradictions.

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  • Dana Heller & Ran Spiegler, 2008. "Contradiction as a form of Contractual Incompleteness," Economic Journal, Royal Economic Society, vol. 118(530), pages 875-888, July.
    • Handle: RePEc:wly:econjl:v:118:y:2008:i:530:p:875-888
    DOI: 10.1111/j.1468-0297.2008.02153.x
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    Cited by:

    1. Toru Suzuki, 2020. "Efficiently Imprecise Contracts," Working Paper Series 2020/07, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    2. Blume, Andreas & Deimen, Inga & Inoue, Sean, 2022. "Incomplete contracts versus communication," Journal of Economic Theory, Elsevier, vol. 205(C).
    3. Zhao, Xiaojian, 2011. "Framing contingencies in contracts," Mathematical Social Sciences, Elsevier, vol. 61(1), pages 31-40, January.

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