Date of this Version


Document Type

Working Paper

Publication Details


S. Grant, J. Kline, J. Quiggin (2009) A matter of interpretation: bargaining over ambiguous contracts

Paper presented at the 5th Pan-Pacific Conference on Game Theory, Day 2 (Thursday, 20 November 2008).

Copyright © S. Grant, J. Kline, J. Quiggin, 2009.


We present a formal treatment of contracting in the face of ambiguity. The central idea is that boundedly rational individuals will not always interpret the same situation in the same way. More specifically, even with well defined contracts, the precise actions to be taken by each party to the contract might be disputable. Taking this potential for dispute into account, we analyze the efects of ambiguity on contracting. We find that risk averse agents will engage in ambiguous contracts for risk sharing reasons. In addition to the risk sharing motivations for contracting in the presence of ambiguity, we find that agents may contract in order to reduce the downside efects of non-cooperative opportunism arising from ambiguity.



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.