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

Benjamin Bental; Bruno Deffains; Dominique Demougin

doi:10.1007/s10657-020-09667-1

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

Benjamin Bental, Bruno Deffains, Dominique Demougin

Department of Economics

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

Abstract

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 language	English
Pages (from-to)	241-265
Number of pages	25
Journal	European Journal of Law and Economics
Volume	50
Issue number	2
DOIs	https://doi.org/10.1007/s10657-020-09667-1
State	Published - 1 Oct 2020

Bibliographical note

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

Keywords

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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10.1007/s10657-020-09667-1

Cite this

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

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

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