Working Paper: CEPR ID: DP2835
Authors: Luca Anderlini; Leonardo Felli; Andrew Postlewaite
Abstract: We study a contracting model with unforeseen contingencies in which the court is an active player. Ex-ante, the contracting parties cannot include the risky unforeseen contingencies in the contract they draw up. Ex-post the court observes whether an unforeseen contingency occurred, and decides whether to void or uphold the contract. If the contract is voided by the court, the parties can renegotiate a new agreement ex-post.
Keywords: incentives; optimal courts; risk; unforeseen contingencies
JEL Codes: C79; D74; D89; K40; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| court voids contract (K12) | reduces incentives for parties to make relationship-specific investments (L14) |
| court voids contract (K12) | provides greater insurance against unforeseen contingencies (G52) |
| court's decision influences incentives and insurance against risks (G52) | court voids contract (K12) |