We are grateful to an editor and a referee for useful comments.
Contradiction as a form of Contractual Incompleteness*
Article first published online: 28 JUN 2008
© The Author(s). Journal compilation © Royal Economic Society 2008
The Economic Journal
Volume 118, Issue 530, pages 875–888, July 2008
How to Cite
Heller, D. and Spiegler, R. (2008), Contradiction as a form of Contractual Incompleteness. The Economic Journal, 118: 875–888. doi: 10.1111/j.1468-0297.2008.02153.x
- Issue published online: 28 JUN 2008
- Article first published online: 28 JUN 2008
- Submitted: 5 December 2005 Accepted: 27 February 2007
A simple model is presented, in which contradictory instructions are viewed as a type of contract incompleteness. The model provides a complexity-based rationale for contradictory instructions. If there are complexity bounds on the contract, there may be an incentive to introduce contradictions, leaving for another agent the task of interpreting them. The optimal amount of contradictions depends on the complexity bound, the conflict of interests with the interpreter and the institutional constraints on his interpretations. In particular, a higher complexity bound may result in a larger amount of contradictions.