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Risk Management in Long-Term Contracts

Victor P. Goldberg

Columbia Law School

September 2005

Columbia Law and Economics Working Paper No. 282

Long-term contracts are designed to manage risk. After a brief discussion of why it is unhelpful to invoke risk aversion for analyzing serious commercial transactions between sophisticated entities, this paper focuses on adaptation to changed circumstances. In particular, it considers the options to abandon and the discretion to change quantity. It then analyzes a poorly designed contract between Alcoa and Essex showing how the parties misframed their problem and designed a long-term contract that was doomed to fail.

Number of Pages in PDF File: 10

JEL Classification: K3

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Date posted: September 20, 2005  

Suggested Citation

Goldberg, Victor P., Risk Management in Long-Term Contracts (September 2005). Columbia Law and Economics Working Paper No. 282. Available at SSRN: https://ssrn.com/abstract=805184 or http://dx.doi.org/10.2139/ssrn.805184

Contact Information

Victor Paul Goldberg (Contact Author)
Columbia Law School ( email )
435 West 116th Street
New York, NY 10025
United States
212-854-8380 (Phone)
212-854-0221 (Fax)

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