|This centre is a member of The LSE Research Laboratory [RLAB]: CASE | CVER | CEP | SERC | STICERD||Cookies?|
Paper No' TE/2004/472: | Full paper
Save Reference as: BibTeX File | EndNote Import File
Keywords: Agreements to agree; ruling out but not ruling in; bargaining; ex post inefficiency.
Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: Theoretical Economics
Share this page: Google Bookmarks | Facebook | Twitter
Abstract:We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i.e., these are 'ruled out'. Ex post, they freely bargain over outcomes on the list, i.e., the contract specifies no mechanism to structure their choice; in this sense outcomes on the list are not 'ruled out'. A 'loose' contract (long list) maximizes flexibility but may interfere with ex ante investment incentives. When these incentives are important enough, the parties may write a 'tight' contract (short list), even though this leads to ex post inefficiency.
Copyright © RLAB & LSE 2003 - 2018 | LSE, Houghton Street, London WC2A 2AE | Contact: RLAB | Site updated 27 May 2018