Skip Navigation

This Article
Right arrow Full Text (PDF)
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Similar articles in ISI Web of Science
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrow Search for citing articles in:
ISI Web of Science (4)
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Gifford, S
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

The Journal of Law, Economics, and Organization V15 I2
© 1999 Oxford University Press

Article

Limited attention and the optimal incompleteness of contracts

S Gifford

Rutgers University

Abstract

A decision-maker's limited attention is allocated between writing new contracts and directing current contracts. More time spent writing a new contract makes the contract more complete. A more complete contract performs better and generates higher returns. The optimal allocation of attention implies two types of contracts, relational and market. A relational contract, which is directed periodically, is optimally less complete than a market contract, which is not directed. The completeness of relational contracts decreases with the ability to direct contracts, since changing circumstances can be dealt with later. In addition, the completeness of relational contracts increases with the ability to write new contracts, since more complete relational contracts are directed less frequently and leave more time for writing new contracts. The optimal allocation of attention to relational contracts is socially efficient even though it does not maximize the discounted expected returns of the firm.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?




Disclaimer:
Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.