Kolstad, Ulen and Johnson (1990) have conjectured that exclusive use of negligence liability leads to suboptimal choice of precaution in the presence of uncertainty and that ex ante regulation can correct these inefficiencies. We complete their argument by making a mild additional premise.

This article considers a bilateral externality problem, in which injurers and victims choose activity levels and levels of care. The incentive effects of liability rules and fines for harm done are analyzed. It is shown that in general socially optimal behaviour can only be induced if fines are...

This paper illustrates in a simple model how the presence of asymmetric information can make it impossible to achieve ex post efficient trade decisions in negotiations.

This paper discusses the literature that explores the effects of anticipated renegotiations on investment incentives. The results depend upon whether or not a party’s investment has a direct externality on another party’s payoff.

In this working paper, S. Renner’s book “Inflation and the Enforcement of Contracts” is discussed.

In this working paper, A. Muthoo’s book “Bargaining Theory with Applications” is discussed.

This article analyzes a much debated clause in the 1996 coalition contract between SPD and F.D.P. in Rheinland-Pfalz. Two parties write a contract, based on which decisions under incomplete information have to be made at a later point in time. It is shown that a complex complete contract can...

This paper characterizes the optimal contract designed by a profit-maximizing monopolist, who can provide an indivisible and excludable public good to a group of n potential consumers, whose valuations are private information. The analysis takes distribution costs and congestion effects into...

This paper provides a non-technical discussion of the incomplete contracting approach to the theory of the firm developed by Grossman and Hart (1986). This approach offers an answer to the questions regarding the boundaries of the firm first raised by Coase (1937).

This article provides a non-technical survey on recent topics in the theory of contracts. The hold-up problem is presented and the incomplete contracts approach is discussed. Emphasis is put on conceptual problems and open questions that await further research.