DP2835 Courts of Law and Unforeseen Contingencies

Author(s): Luca Anderlini , Leonardo Felli , Andrew Postlewaite

Publication Date: June 2001

Keyword(s): Optimal Courts , Unforeseen Contingencies , Risk , Incentives

JEL(s): D74 , K40 , L14

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP2835.asp

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.