TY - JOUR
T1 - Legal Environment and Contractual Choice
AU - Cheng, Ho Cheung
N1 - Publisher Copyright:
© 2021 Walter de Gruyter GmbH, Berlin/Boston.
PY - 2022/6/1
Y1 - 2022/6/1
N2 - This paper considers contractual choice under imperfect legal systems, in particular, contracts with different timing of payment. Ex-ante payment contracts are risky for the buyer, because the seller may shirk. Ex-post payment contracts are risky for the seller, as the buyer may default. Optimal contract is solved for any given legal environment. Exchanges with lower gains from trade tend to adopt ex-post payment contracts. The seller is a better proposer than the buyer in terms of the efficiency of the proposed contract. Surprisingly, offering ex-ante payment contracts is not strictly better for the seller under any legal environment. Moreover, mixed payment contracts are also analyzed and shown to never be optimal.
AB - This paper considers contractual choice under imperfect legal systems, in particular, contracts with different timing of payment. Ex-ante payment contracts are risky for the buyer, because the seller may shirk. Ex-post payment contracts are risky for the seller, as the buyer may default. Optimal contract is solved for any given legal environment. Exchanges with lower gains from trade tend to adopt ex-post payment contracts. The seller is a better proposer than the buyer in terms of the efficiency of the proposed contract. Surprisingly, offering ex-ante payment contracts is not strictly better for the seller under any legal environment. Moreover, mixed payment contracts are also analyzed and shown to never be optimal.
KW - 2 sided moral hazard
KW - contract
KW - imperfect court, timing of payment
UR - http://www.scopus.com/inward/record.url?scp=85115641553&partnerID=8YFLogxK
U2 - 10.1515/bejte-2020-0098
DO - 10.1515/bejte-2020-0098
M3 - 期刊論文
AN - SCOPUS:85115641553
SN - 1935-1704
VL - 22
SP - 557
EP - 577
JO - B.E. Journal of Theoretical Economics
JF - B.E. Journal of Theoretical Economics
IS - 2
ER -