The Price of Cheeky Contracting

34 Pages Posted: 27 Aug 2021 Last revised: 31 Aug 2021

See all articles by Paolo Colla

Paolo Colla

Bocconi University - Department of Finance; Bocconi University - BAFFI Center on International Markets, Money, and Regulation

Mitu Gulati

University of Virginia School of Law

Date Written: August 25, 2021

Abstract

An implication of the incompleteness of contracts is that there are going to be gaps and ambiguities that either side can exploit. We ask whether the expectation that a counterparty is likely to act aggressively in its use of contract language impacts the price that market participants attach to that contract. To do our analysis, we look at how markets price contract terms for the perennial “bad boy” of the sovereign debt markets, the Republic of Argentina. The results are consistent with a market penalty for cheeky contracting.

Keywords: opportunistic contracting, sovereign debt, bad faith

JEL Classification: F34, H63, H74, K12

Suggested Citation

Colla, Paolo and Gulati, Mitu, The Price of Cheeky Contracting (August 25, 2021). Law and Contemporary Problems, Forthcoming, Virginia Public Law and Legal Theory Research Paper No. 2021-41, Virginia Law and Economics Research Paper No. 2021-18, Available at SSRN: https://ssrn.com/abstract=3911470 or http://dx.doi.org/10.2139/ssrn.3911470

Paolo Colla

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Mitu Gulati (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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