Cognition and Incomplete Contracts
American Economic Review · 2009 · Volume 99 · Issue 1
Abstract
Thinking about contingencies, designing covenants, and seeing through their implications is costly. Parties to a contract accordingly use heuristics and leave it incomplete. The paper develops a model of limited cognition and examines its consequences for contractual design. (JEL D23, D82, D86, L22)
Keywords
Organizational Behavior, Transaction Costs, Property Rights, Asymmetric and Private Information, Economics of Contract: Theory, Firm Organization and Market Structure
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