Coase-Sandor Working Paper Series in Law and Economics
Publication Date
2000
Publication Title
Law & Economics Working Papers
Abstract
Standard economic models of contract imply that contracts should be highly "complex," by which we mean (1) rich in the expected number of payoff-relevant contingencies; (2) variable in the magnitude of payoffs contracted to flow between parties; and (3) severe in the cognitive load necessary to understand the contract. Yet most realworld contracts are simple along all three of these dimensions. We argue that many factors, often neglected in the literature, account for this discrepancy. The factors are categorized as asymmetric information, monitoring dynamics, evolutionary pressures, conventions, reliance on trust and reputation, enforcement costs, bounded rationality, and renegotiation. This positive analysis has normative implications for how lawyers draft contracts, and for how courts rely on the form of a contract (specifically, its degree of complexity) in order to interpret it.
Number
93
Recommended Citation
Karen Eggleston, "Simplicity and Complexity in Contracts" (John M. Olin Program in Law and Economics Working Paper No. 93, 2000).
Additional Information
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