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  3. American Economic Review
  4. March 2009
  5. Cognition and Incomplete Contracts

Cognition and Incomplete Contracts

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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)

Citation

Tirole, Jean. 2009. "Cognition and Incomplete Contracts." American Economic Review, 99 (1): 265-94. DOI: 10.1257/aer.99.1.265

JEL Classification

  • D23 Organizational Behavior; Transaction Costs; Property Rights
  • D82 Asymmetric and Private Information
  • D86 Economics of Contract: Theory
  • L22 Firm Organization and Market Structure