A matter of interpretation: Ambiguous contracts and liquidated damages

We consider the optimality of liquidated damages contracts in a setting of contractual ambiguity and potential for disputes. We show that when parties are ambiguity averse enough, they will optimally choose liquidated damages contracts and sacrifice risk sharing opportunities.

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Year of publication:	2014
Authors:	Grant, Simon ; Kline, J. Jude ; Quiggin, John
Published in:	Games and Economic Behavior. - Elsevier, ISSN 0899-8256. - Vol. 85.2014, C, p. 180-187
Publisher:	Elsevier
Subject:	Ambiguity \| Bounded rationality \| Expected uncertain utility \| Incomplete contracts \| Liquidated damages

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Type of publication:	Article
Classification:	D80 - Information and Uncertainty. General ; D82 - Asymmetric and Private Information
Source:	RePEc - Research Papers in Economics

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