Agreeing Now to Agree Later : Contracts that Rule Out But Do Not Rule in

We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i.e., these are quot;ruled outquot;. Ex post, they freely bargain over outcomes on the list, i.e., the contract specifies no mechanism to structure their choice; in this sense outcomes on the list are not quot;ruled inquot;. A quot;loosequot; contract (long list) maximizes flexibility but may interfere with ex ante investment incentives. When these incentives are important enough, the parties may write a quot;tightquot; contract (short list), even though this leads to ex post inefficiency