Differential awareness, ambiguity, and incomplete contracts: a model of contractual disputes?

We focus on aspects of differential awareness that give rise to contractual disputes. Parties to a contract are boundedly rational as the state space available to them is coarser than the complete state space. Hence, they may disagree as to which state of the world has occurred, and therefore as to what actions are required by the contract. Such disagreement leads to disputes. We show that the agents may prefer simpler less ambiguous contracts when facing potential disputes.


Issue Date:
Feb 23 2012
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/151200
Total Pages:
23
JEL Codes:
D80; D82
Series Statement:
Risk and Uncertainty Program
R12/1




 Record created 2017-04-01, last modified 2017-08-22

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