A matter of interpretation: Ambiguous contracts and liquidated damages

Simon Grant; J. Jude Kline; John Quiggin

doi:10.1016/j.geb.2014.01.019

A matter of interpretation: Ambiguous contracts and liquidated damages

Simon Grant^*, J. Jude Kline, John Quiggin

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

8 Citations (Scopus)

Abstract

We consider the optimality of liquidated damages contracts in a setting of contractual ambiguity and potential for disputes. We show that when parties are ambiguity averse enough, they will optimally choose liquidated damages contracts and sacrifice risk sharing opportunities.

Original language	English
Pages (from-to)	180-187
Number of pages	8
Journal	Games and Economic Behavior
Volume	85
Issue number	1
DOIs	https://doi.org/10.1016/j.geb.2014.01.019
Publication status	Published - May 2014
Externally published	Yes

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title = "A matter of interpretation: Ambiguous contracts and liquidated damages",

abstract = "We consider the optimality of liquidated damages contracts in a setting of contractual ambiguity and potential for disputes. We show that when parties are ambiguity averse enough, they will optimally choose liquidated damages contracts and sacrifice risk sharing opportunities.",

keywords = "Ambiguity, Bounded rationality, Expected uncertain utility, Incomplete contracts, Liquidated damages",

author = "Simon Grant and Kline, {J. Jude} and John Quiggin",

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KW - Ambiguity

KW - Bounded rationality

KW - Expected uncertain utility

KW - Incomplete contracts

KW - Liquidated damages

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SP - 180

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JO - Games and Economic Behavior

JF - Games and Economic Behavior

IS - 1

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A matter of interpretation: Ambiguous contracts and liquidated damages

Abstract

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