On the Writing and the Interpretation of Contracts

Posted: 29 Feb 2008

See all articles by Steven Shavell

Steven Shavell

Harvard Law School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: October 2006

Abstract

The major theme of this article is that the interpretation of contracts is in the interests of contracting parties. The general reasons are (a) that interpretation may improve on otherwise imperfect contracts; and (b) that the prospect of interpretation allows parties to write simpler contracts and thus to conserve on contracting effort. A method of interpretation is defined as a function whose argument is the written contract and whose value is another contract, the interpreted contract, which is what actually governs the parties' joint enterprise. It is shown that interpretation is superior to enforcement of contracts as written, and the optimal method of interpretation is analyzed.

Suggested Citation

Shavell, Steven, On the Writing and the Interpretation of Contracts (October 2006). The Journal of Law, Economics, and Organization, Vol. 22, Issue 2, pp. 289-314, 2006. Available at SSRN: https://ssrn.com/abstract=1098689 or http://dx.doi.org/10.1093/jleo/ewj017

Steven Shavell (Contact Author)

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