Abstract
When drawing up a contract, it is often impracticable to specify all the relevant contingencies, and so contracts are typically incomplete. This paper considers the extent to which these gaps migh t be filled by building into the contract a mechanism for revising th e terms of trade. One conclusion is that because the par-ties can res cind the original contract and ne-gotiate a new one, severe limitatio ns are placed on the form the revisions can take. The authors charact erize the optimal revision mechanism both when the contract is used t o encourage relationship-specific investments and when it is used for risk sharing. Copyright 1988 by The Econometric Society.
Keywords
NegotiationIncomplete contractsMechanism (biology)Law and economicsBusinessEconomicsMicroeconomicsPolitical scienceLawEpistemologyIncentive
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Publication Info
- Year
- 1985
- Type
- preprint
- Citations
- 11
- Access
- Closed
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Oliver Hart,
J. Strother Moore
(1985).
Incomplete Contracts and Renegotiation.
RePEc: Research Papers in Economics
.