DP2835 Courts of Law and Unforeseen Contingencies
|Author(s):||Luca Anderlini, Leonardo Felli, Andrew Postlewaite|
|Publication Date:||June 2001|
|Keyword(s):||Incentives, Optimal Courts, Risk, Unforeseen Contingencies|
|JEL(s):||D74, K40, L14|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2835|
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.