Halonen-Akatwijuka, Maija. <br/><br/>
More is Less:  Why Parties May Deliberately Write Incomplete Contracts / 
Maija Halonen-Akatwijuka, Oliver D. Hart. 
 - Cambridge, Mass.  National Bureau of Economic Research  2013. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w19001 .
 - Working Paper Series (National Bureau of Economic Research)  no. w19001. .
<br/><br/> April 2013. 
<br/><br/> Why are contracts incomplete? Transaction costs and bounded rationality cannot be a total explanation since states of the world are often describable, foreseeable, and yet are not mentioned in a contract. Asymmetric information theories also have limitations. We offer an explanation based on "contracts as reference points". Including a contingency of the form, "The buyer will require a good in event E", has a benefit and a cost. The benefit is that if E occurs there is less to argue about; the cost is that the additional reference point provided by the outcome in E can hinder (re)negotiation in states outside E. We show that if parties agree  about a reasonable division of surplus, an incomplete contract can be strictly superior to a contingent contract. 
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