Corpus ID: 155065834

Incomplete Contracts and Strategic Ambiguity

  title={Incomplete Contracts and Strategic Ambiguity},
  author={B. Bernheim and M. Whinston},
  journal={The American Economic Review},
Why are observed contracts so often incomplete in the sense that they leave contracting parties' obligations vague or unspecified? Traditional answers to this question invoke transaction costs or bounded rationality. In contrast, the authors argue that such incompleteness is often an essential feature of a well-designed contract. Specifically, once some aspects of performance are unverifiable, it is often optimal to leave other verifiable aspects of performance unspecified. The authors explore… Expand

Figures from this paper