Interpreting contracts: the purposive approach and non-comprehensive incentive contracts

Benjamin Bental, Bruno Deffains, Dominique Demougin

    Research output: Contribution to journalArticlepeer-review


    Real world contracts often contain incentive clauses that fail to fully specify conditions triggering payments, giving rise to legal disputes. When complete contract generate Pareto efficient allocations the L&E literature advocates that courts should fill in the missing clauses. This logic does not directly extend to environments with moral hazard, where complete contracts result in constrained efficient allocations. Despite this inefficiency we find that when agency and marginal agency costs are congruent, the legal system can do no better than guide its courts to complete contracts according to the parties’ intentions.

    Original languageEnglish
    Pages (from-to)241-265
    Number of pages25
    JournalEuropean Journal of Law and Economics
    Issue number2
    StatePublished - 1 Oct 2020

    Bibliographical note

    Publisher Copyright:
    © 2020, Springer Science+Business Media, LLC, part of Springer Nature.


    • Asymmetric information
    • Balance of probabilities
    • Courts
    • Incomplete contracts
    • Judicial system

    ASJC Scopus subject areas

    • Business and International Management
    • Economics and Econometrics
    • Law


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