The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Unforeseen Contingencies

  • Barton L. Lipman
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2236

Abstract

While unforeseen contingencies – possible events that agents do not think of when planning or contracting – are often said to greatly affect the nature of contracting, we lack useful formal models. Most of the existing models boil down to assuming that agents give zero probability to some events that might actually occur, an approach which is not particularly useful for studying the effects of unforeseen contingencies on contracting.

Keywords

Control rights Expected utility Incomplete contracts Long-term and short-term contracts Probability Rationality, bounded Short-term contracts Uncertainty Unforeseen contingencies 

JEL Classifications

D8 
This is a preview of subscription content, log in to check access.

Notes

Acknowledgments

The author would like to thank Eddie Dekel, Jing Li, Aldo Rustichini, and Marie- Odile Yanelle for discussions and comments.

Bibliography

  1. Al Najjar, N., L. Anderlini, and L. Felli. 2006. Undescribable events. Review of Economic Studies 73: 849–868.CrossRefGoogle Scholar
  2. Dekel, E., B. Lipman, and A. Rustichini. 2001. Representing preferences with a unique subjective state space. Econometrica 69: 891–934.CrossRefGoogle Scholar
  3. Epstein, L., M. Marinacci, and K. Seo. 2007. Coarse contingencies. Working paper. University of Rochester.Google Scholar
  4. Fishburn, P. 1970. Utility theory for decision making, Publications in Operations Research, No. 18. New York: Wiley.CrossRefGoogle Scholar
  5. Ghirardato, P. 2001. Coping with ignorance: Unforeseen contingencies and non-additive uncertainty. Economic Theory 17: 247–276.CrossRefGoogle Scholar
  6. Grossman, S., and O. Hart. 1986. The costs and benefits of ownership: A theory of vertical and lateral integration. Journal of Political Economy 94: 691–719.CrossRefGoogle Scholar
  7. Halpern, J., and L. Rêgo. 2005. Interactive awareness revisited. In Proceedings of tenth conference on theoretical aspects of rationality and knowledge, ed. R. van der Meyden. Singapore: National University of Singapore.Google Scholar
  8. Halpern, J., and L. Rêgo. 2006. Extensive games with possibly unaware players. In Proceedings of the fifth international joint conference on autonomous agents and multiagent systems. New York: ACM Press.Google Scholar
  9. Hart, O. 1995. Firms, contracts, and financial structure. Oxford: Clarendon Press.CrossRefGoogle Scholar
  10. Hart, O., and J. Moore. 1988. Incomplete contracts and renegotiation. Econometrica 56: 755–786.CrossRefGoogle Scholar
  11. Hayek, F. 1960. The constitution of liberty. Chicago: University of Chicago Press.Google Scholar
  12. Heifetz, A., M. Meier, and B. Schipper. 2006a. Interactive unawareness. Journal of Economic Theory 130: 78–94.CrossRefGoogle Scholar
  13. Heifetz, A., M. Meier, and B. Schipper. 2006b. Unawareness, beliefs, and games. Working paper. University of California–Davis.Google Scholar
  14. Internal Revenue Service. 2006. Selling your home, Publication 523. Washington, DC: Internal Revenue Service, US Treasury Department.Google Scholar
  15. Kreps, D. 1979. A representation theorem for ‘preference for flexibility’. Econometrica 47: 565–576.CrossRefGoogle Scholar
  16. Kreps, D. 1992. Static choice and unforeseen contingencies. In Economic analysis of markets and games: Essays in honor of Frank Hahn, ed. P. Dasgupta, D. Gale, O. Hart, and E. Maskin. Cambridge: MIT Press.Google Scholar
  17. Li, J. 2006a. Information structures with unawareness. Working paper, University of Pennsylvania.Google Scholar
  18. Li, J. 2006b. Dynamic games with unawareness. Working paper, University of Pennsylvania.Google Scholar
  19. Maskin, E., and J. Tirole. 1999. Unforeseen contingencies and incomplete contracts. Review of Economic Studies 66: 83–114.CrossRefGoogle Scholar
  20. Modica, S., A. Rustichini, and J.-M. Tallon. 1998. Unawareness and bankruptcy: Aa general equilibrium model. Economic Theory 12: 259–292.CrossRefGoogle Scholar
  21. Williamson, O. 1975. Markets and hierarchies: Analysis and antitrust implications. New York: Free Press.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Barton L. Lipman
    • 1
  1. 1.