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.