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

Simon Grant; J. Jude Kline; John Quiggin

doi:10.1016/j.jebo.2012.02.021

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

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 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.

Original language	English
Pages (from-to)	494-504
Number of pages	11
Journal	Journal of Economic Behavior and Organization
Volume	82
Issue number	2-3
DOIs	https://doi.org/10.1016/j.jebo.2012.02.021
Publication status	Published - May 2012
Externally published	Yes

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10.1016/j.jebo.2012.02.021

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abstract = "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.",

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

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AU - Quiggin, John

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KW - Ambiguity

KW - Bounded rationality

KW - Expected uncertain utility

KW - Incomplete contracts

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ER -

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

Abstract

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