Incorporating Unawareness into Contract Theory
Emel Filiz Ozbay ,
( 76 )
Games and Economic Behavior
contract.pdf247.28 KB

Asymmetric awareness of the contracting parties regarding the uncertainty surrounding them is proposed as a reason for incompleteness in contractual forms. An insurance problem is studied between a risk neutral insurer, who has superior awareness regarding the nature of the uncertainty, and a risk averse insuree, who cannot foresee all the relevant contingencies. The insurer can mention in a contract some contingencies that the insuree was originally unaware of. It is shown that there are equilibria where the insurer strategically oers incomplete contracts.

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