'Agreeing to Disagree': Filling Gaps in Deliberately Incomplete Contracts

The Social Efficiency of Fairness

“…Information revelation remains a problem. In a manner analogous to the processes of "gap-filling" that allows incomplete contracts to proceed (Ben-Shahar, 2004), a commitment to fairness moves the weight of contract negotiations from haggling over anticipated contingency enumeration to ex post verification of contributed value. Those who, in retrospect, add more value now, receive more value later.…”

Basel II: A Contracting Perspective

“…From the perspective of the individual constituencies, hard-to-decode loose ends are options that can be characterized as opportunities for regulators to renegotiate or reinterpret the agreement when unforeseen or unspecified contingencies arise (Ben-Shahar 2004;Foss 1996;Hart and Moore 1999;Hart 2007;Macleod 2006). Retaining flexibility is a good thing, but granting flexibility to a contractual counterparty authorizes it to act adversely to one's interests.…”

Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In

“…217-222). Two recent contributions to the legal literature are Ben-Shahar (2004) and Scott (2003). A key issue for these authors, and for the courts, is whether an agreement is too indefinite to be enforceable.…”

“…To mention some other theories: it has been argued that a loose or open contract can be desirable for signalling reasons (see Allen-Gale (1992), Spier (1992)); to encourage reputationbuilding and trust (see Baker et al (1994), Boot et al (1993), MacLeod-Malcomson (1989)); and to allow parties to punish "off the equilibrium path" behaviour (see Bernheim-Whinston (1998)). Scott (2003) and Ben-Shahar (2004) have recently used these and related theories to understand why parties write agreements to agree. Scott (2003) argues that reciprocal fairness can explain this phenomenon; while Ben-Shahar (2004) suggests that, among other things, agreements to agree are a way for parties, ex ante, to overcome negotiation deadlocks when they have different priors.…”

“…Scott (2003) and Ben-Shahar (2004) have recently used these and related theories to understand why parties write agreements to agree. Scott (2003) argues that reciprocal fairness can explain this phenomenon; while Ben-Shahar (2004) suggests that, among other things, agreements to agree are a way for parties, ex ante, to overcome negotiation deadlocks when they have different priors. 4 Thus there is a potential hold-up problem.…”