Speaker: Simon Grant
Affiliation: The University of Queensland
Title: A matter of interpretation: Ambiguous contracts and liquidated damages
Date: Tuesday, 22 Nov 2011
Time: 4:00 pm
Location: Room 6115, Owen Glenn Building
We focus on syntactic aspects of differential awareness that give rise to contractual disputes. Boundedly rational parties use a common language, but do not share a common understanding of the world, leading to ambiguity in both syntactic and semantic forms. In contractual relationships, ambiguity leads to disagreement and disputes. We show that the agents may prefer simpler less ambiguous contracts when facing potential disputes. In particular, parties may prefer liquidated damages provisions to contractual terms that specify a more complex risk allocation.