Complete (perfect) contract. Causes and consequences of incompleteness of contracts Reasons for incompleteness of real contracts

A perfect (exhaustive, complete) contract is an ideally designed, comprehensive contract that defines what each party must do under all possible circumstances, including cases of failure to fulfill the contract, and is the best option for each of the parties to the contract. This is a contract in a world of perfect (complete) information, where, if we recall the beginnings of microeconomics, there are no long transactions, where everything can be done at once. Those. in all cases (except for those associated with processes that are purely technologically long), contracts will be executed simultaneously, because they completely coincide with the physical movement of objects.

§ absolute rationality;

§ complete information (perfect information);

§ absolute computing abilities (instant calculation), including predictive abilities

Properties:

§ A complete contract must determine the distribution of costs and benefits in each of a possible set of cases. In other words, a complete contract determines the costs associated with the activities of agents in each case, and the benefits that arise from their activities.

§ At the same time, a complete contract must provide for absolutely all cases of non-compliance by one of the parties with certain terms of the contract and the corresponding penalties.

§ The parties must have no desire to further revise the terms of the contract.

§ The contract is voluntary, it is implemented without coercion and is based on the principles of mutual benefit.

The specified abstraction cannot be written for a number of reasons:

1. Bounded rationality of the parties

2. Unforeseen circumstances and the impossibility of accurate forecasting. And since the contract cannot be written down completely, “contract holes” always appear in it.

Information asymmetry

Imprecise language

Imperfections in keeping promises

Conflict of interests of the parties

High opportunity costs of settlements and contracts, for example, when taking into account circumstances that are unlikely and there is no experience of action that could serve as a guide for such cases.

The underdetermination of contracts is their inherent property.

Organization, standardization and remuneration of labor in the Kuzbass Agricultural Academy
Completing industrial and professional practice is an important stage in the training of university students. The internship was carried out at the Production Cooperative Agricultural Artel (Collective Farm) “Kuzbass”, in the Kemerovo region, Promyshlennovsky district, Protopopovo village, Tsentrolny lane, 1, as an intern from July 1, 2011 to July 14, 2011. The chief accountant, Nikolai Konstantinovich Vasiliev, was the head of this practice and provided significant assistance in...

The reason for the incompleteness of contracts is the positive value of transaction costs. For example, the failure of the 70-year Soviet experiment in building socialism in a single part of the world is largely due to the underdetermined nature of contractual relations in the economy and the underdetermined obligations of citizens. When contracts are incomplete, the mechanism for reconciling the different interests of individuals is imperfect. In an incomplete contract, the behavior of all parties cannot be adequately controlled and may ineffectively limit the extent of possible cooperation or prevent the overall agreement from being reached.

Types of problems that arise in the real world:

1. The problem of non-compliance with the terms of the contract violates the mechanism of influence of the behavior of one party on the expectations and behavior of the other. It may manifest itself in the fact that the actions that need to be taken in different situations either undefined or subject to different interpretations. IN the latter case a party may fail to meet the expectations of the other party by formally fulfilling the terms of the contract.

2. The problem with ex post contract revision is that the parties, while preparing the initial contract, knowing that it can be revised if external conditions change, will not be able to draw up the contract in such a way that it ensures the desired behavior of the counterparties. For example, to incentivize managers, firms often sell them options to buy the firm's shares in the future at a predetermined price. This creates an incentive to increase stock prices above the option price. However, if stock prices fall due to adverse conditions, the options become worthless and it makes sense to exercise new options at a lower price. Managers, knowing this, will be less concerned about a fall in the stock price than they would be if the possibility of changing the terms of the contract did not exist.

3. In the real world, it is not absolute, but limited rationality that takes place. People choose certain strategies and follow them as long as they bring positive results. Society always strives to follow certain models, inherit certain institutions and act rationally within their framework.

4. In the real world, information is incomplete due to its high cost. And incomplete information is associated with such phenomena as opportunistic behavior, moral hazard and adverse selection. Parties must bear additional measurement costs to ensure better awareness, background and target information.

5.The problem of investment in specific assets and specificity of assets. The level of specificity of an asset is determined by the proportion of value that the asset loses as a result of its better alternative use. Special case, “co-specialized (or related) assets” are paired specialized assets, the specificity of which is determined by their connection with each other. For example, this is - Railway and the mine (or plant) whose products it exports; blast furnace and open hearth production. When making these investments, a problem is created in that the effect of the investment depends on the behavior of the owner of another asset, who has his own selfish interests. The possibility of opportunism is created.

6.Hold-up problem. The problem of extortion is an example of post-contract opportunism, which arises in conditions of incomplete information and the specificity of the asset in which one of the parties is investing. In this case, it may be forced to accept unfavorable conditions for it or the investment will be devalued by the actions of other parties. For example, if Uralmashplant sold its walking excavator to the Yakut open-pit mine, which costs from $2 to $5 million. This is a complex unit that needs to be constantly maintained and maintained. And if the director of the mine asks the director of the Uralmash plant K. Bendukidze to wait six months for payment, the latter will clearly meet him halfway. It is important for Bendukidze that the mine bought the excavator from him and, lo and behold, in two years he will buy another one, and he will service this excavator. Investments have been made, including at the level of human capital. Uralmashplant, which produces excavators, adapted to the needs of the customer, first of all, its employees, who designed and serviced this excavator for it. The same applies to the workers of the Yakut mine, who are accustomed to working with engineers from Uralmashplant. But since human capital costs currently account for about 40–50% of costs, this practically determines the position of partners in this situation. Basic methods of struggle:

1) A company that needs specific assets makes investments in them itself, i.e. the emergence of vertical integration.

2) Relational contracts - long-term contracts in which the parties are bound by relationships that are unprofitable for the partners to break

3) Reputation as an effective way to prevent post-contract opportunism in general and extortion in particular. The incentives to strive to create and maintain a reputation increase as the frequency of transactions increases, the scope of their implementation increases, and profitability increases.

7. With an increase in the number of parties, free-rider problems and restrictions on contract rights also appear (queuing theory), i.e., a method of establishing ownership rights to a certain product through expectations and according to the principle: “first come, first served.”

conclusions

A contract is a two-way legal transaction in which two parties have agreed to certain mutual obligations. Fundamental Principles contractual obligations are:

1) freedom of contract, i.e. freedom to conclude, determine the content and form of a contract, freedom to choose counterparties;

2) responsibility for fulfilling the contract, i.e. violation of the terms of the contract serves as the basis for holding the violator accountable.

In the real world, the implementation of contracts is subject to significant costs, as a result of which contracts are imperfect. IN general structure costs, a significant place is occupied by transaction costs directly related to ensuring the exchange and communication between people. These costs have a significant impact on the effectiveness of contracts. These costs create a system of incentives that characterizes the behavior of participants in contractual relations. The discrepancy between the goals of the parties to contracts may determine the desire of some economic entities to reduce transaction costs, while others will be interested in their growth. It is this circumstance that underlies the creation of socio-economic institutions, on the implementation of certain functions of which the ways to optimize these costs depend. However, these and other problems of transaction costs of contractual relations in the Russian economy have been little studied in modern scientific literature.

Bibliography

1. Kuzminov, Ya.I., Bendukidze K.A., Yudkevich M.M. Course in institutional economics. M.: Publishing house. House of State University Higher School of Economics, 2006. Chapter 1.

2. Kuzminov, Ya.I., Bendukidze K.A., Yudkevich M.M. Course in institutional economics. M.: Publishing house. House of State University Higher School of Economics, 2006. Chapter 2.

3. Oleynik, A.N. Institutional economics: Educational and methodological manual. M., 2005. Topic 1.

4. Oleynik A.N. Institutional economics: Textbook. Benefit. M.: INFRA-M, 2009. Topic 8.

5. Shastitko A. Incomplete contracts: problems of definition and modeling. 2005. P. 80.

6. Tambovtsev V.L. Contract model of firm strategy. M.: Econ. fak. TEIS, 2010. pp. 15–25.

7. Nureyev R.M. Microeconomics course: Textbook for universities. M.: Publishing house. group NORMA-INFRA-M, 2011.P. 184.

8. Tambovtsev V.L. Introduction to the economic theory of contracts: Textbook. allowance. – M.: INFRA-M, 2012.

Reasons for incomplete contracts

1. Bounded rationality of the parties
2. Unforeseen circumstances and the impossibility of accurate forecasting. And since the contract cannot be written down completely, “contract holes” always appear in it.
3. Information asymmetry
4. Imprecise language
5. Imperfections in keeping promises
6. Conflict of interests of the parties
7. High opportunity costs of settlements and contracts, for example, when taking into account circumstances that are unlikely and there is no experience of action that could serve as a guide for such cases.

Types of information asymmetry and types of oppurtanistic behavior

1. Hidden characteristics (from the buyer) - adverse selection;

2. Hidden actions/hidden information - moral hazard of the party that has information that is not available to the other party. In the form of slacking, the individual works with less efficiency than is required of him under the contract.

3. The hidden intentions of the transaction partner are fraught with the danger of the third type of opportunistic behavior - extortion (the sole owner of the resource is fucked).

In contract theory, special attention is paid to such an element of transaction costs as the costs of opportunistic behavior. Within the framework of neo-institutional theory, the premise that the individual maximizes his own benefit is preserved, therefore a person’s behavior is characterized by selfish motives (the theory of opportunism was developed by Williamson).

A weak focus on self-interest is obedience. In addition to this form, Williamson identifies semi-strong and strong forms of egoism.

The semi-strong form is following one’s own interests (for this there is a prerequisite for certainty of information and this form is most typical for neoclassical theory).

A strong form of selfish behavior is opportunism, which Williamson views as the pursuit of personal interest through deceit.

From a contract process perspective, there are two types of contract behavior:

1. Possibly during the period of concluding a contract, as a rule, it manifests itself in the concealment of true information.

2. Post-contract opportunism, which manifests itself in the form of violation of the terms of the contract. The reason for this behavior is the incompleteness of the contract (it is impossible to take into account all possible situations when drafting).

19. From a legal point of view, two main types of contracts are considered:

1. Sales contract. As part of the contract, it assumes the transfer to permanent basis ownership of a particular asset from one party to another.

2. A rental contract in the form of an arena facility in which the tenant receives certain period right of use and right to income. A type of employment contract is an employment contract.

In economic theory, three types of contracts become the object of analysis (according to McNeil):

1. Classical. Completeness of information for transaction participants, absence of uncertainty, and, as a result, zero transaction costs. This contract implies a purchase and sale relationship as a one-time exchange of rights. Its fundamental feature is the “if, then” condition. The resolution of disputes that may arise between participants in classical contracts can occur in civil court. If one of the counterparties violates the terms of the contract, the relationship is terminated and the contract is cancelled.
2. Neoclassical. It represents a long-term contract under conditions of uncertainty, i.e. not all future actions can be specified and foreseen. Such a contract. It will be incomplete. To resolve any disputes that arise, the parties to such a contract agree to a third party decision. This is where a trust mechanism for resolving disputes arises. The object of such a contract is non-specific assets. The regularity of such contracts is less high than in classical ones.
3. Implicit (relational). As contracts become stronger, the compliance of the parties to the contract with each other becomes increasingly important, and when replacing a partner becomes difficult, neoclassical methods of contracts are replaced by relational ones. In this case, in the implicit contract, informal rules begin to take precedence over formal ones. An implicit contract is a contract that is not fully agreed upon. It does not clearly define the terms of interaction. The characteristics of the interaction are not specified, because the costs of such contracts are very high. Relational contracts arise in conditions of resource specificity, when in the event of a relationship interruption, an equivalent replacement cannot be found on the market, therefore all disputes can be resolved through informal negotiations. Unlike classical contracts, the identities of the participants become crucial. The guarantee of the fulfillment of the contract is the agreement between the parties to the transaction themselves.

The choice of a particular type of contract depends on the characteristics of the transactions, and, according to

The neoclassical theory of the firm views it as a "black box". The firm in this theory is represented by a “given”. Like the consumer, the firm acts as a primary logical element economic system. Neoclassical theory, in principle, does not pose the question of why a firm arises. Also no attention is paid to character internal organization firms, such management tasks as searching for markets, products, technologies. Management in this model solves only one problem - to choose the profit-maximizing volume of output. It is this task that is presented at the center of the theory of the firm in the interpretation of price theory. “In the standard interpretation adopted in modern theory, firms are represented as sets of production possibilities to which a profit motive is attached.”

The main assumptions of the neoclassical theory of the firm are:1. Uniqueness of the criterion for choosing a solution.

2. Unlimited possibilities and processing of information coming from the external environment.

Modern microeconomic theory proposes a path model to explain firm behavior. The initial limitations of this model are: constant prices for resources, constant growth of the manufacturer's budget, the use of two factors of production. While the study of general economic theory begins with the postulate that resources are limited, in the theory of perfect competition it is assumed that for each individual firm there are no resources limited. I. Kirzner focuses on the fact that in the orthodox theory of the firm, “the entrepreneur-manufacturer has already acquired certain resources, which can now condemn him to the production of a certain product.” In institutional economics, a firm is in most cases considered as an economic organization that is an alternative to the market a method of economic coordination associated with organizational costs.

A private enterprise company is an example of a classic company, the owner of which simultaneously has all five powers. The presence of a central agent allows one to avoid the costs of negotiating and concluding numerous contracts and reduces the cost of assessing the contribution of production participants. The functions of ownership and management in such a company are combined, therefore all the risk falls on one individual and the amount of his income will be determined by market conditions. Entrepreneurial talent and the ability to supervise the work of other team members.

The main positive features of a private enterprise are the powerful motivation of the owner-manager and the associated complete identification of the individual with the business he manages.

At the same time, the concentration of the right to residual income with a single owner leads to an aggravation of the problems of opportunistic behavior on the part of other team members. The condition for ensuring the credibility of the threat of punishment is effective control and monitoring the activities of employees. The inability to control a large number of performers predetermines the small size of private enterprise firms.

Partnership – here a set of powers belongs not to one, but to several individuals, and the exercise of the right to transfer them may be limited. The right to residual income now belongs to all owners of specific resources and takes the form of participation in profits. At the same time, the combination of the right to residual income and control may not provide sufficient protection against opportunism under these conditions. Partnerships run the risk of exacerbating the free-rider problem: team members who do not identify with common cause, may find it possible to save their own efforts.

There are positive aspects to increasing the number of partners. As the partnership grows, financial restrictions weaken, which makes it possible to make greater use of the positive effects of production scale and diversify the types of products produced. This also leads to a reduction in the riskiness of investments and an expansion of the time horizon for the operation of the company.

In a partnership, the right to residual income is combined with the right to control and management. But the exercise of powers by an individual is possible only in agreement with other partners. This predetermines an increase in decision-making costs within of this type organizations. Possible option Reducing the severity of the problem is the informal specialization of some members to exercise certain powers.

Equality is usually observed between the owners of specific human capital, so partnerships are often found in the scientific, artistic, intellectual activity. In these areas, it is difficult to monitor the activities of team members. Equal distribution of rights to residual income and control, as well as the cultivation of informal relationships, is the most effective way preventing opportunistic behavior.

Complete (perfect) contract

"complete contract", but it is better called "exhaustive contract". Such a contract cannot be written for a number of reasons, but this abstraction is necessary to understand what the contract itself is, as well as what deviations from the perfection of the contract and in what forms are permissible.

The concept of "full contract" was introduced by Milgrom and Roberts.

2) imperfect contract:

1) spot contracts . These market contracts can be represented as follows: the participants in the transaction met, exchanged, and separated. Point-to-point contracts are characterized by their minimal security and minimal spelling. They either use a standard form of contractual obligations or rely on existing legislation. Point contracts can only exist when the relative value of the capital invested by the participants in the contract is relatively small.

The concept of institutional change.

In order to clearly understand what institutional changes are. Let us highlight the so-called “rule formula”:

Any rule contains a description of a situation that characterizes the conditions for the fulfillment of the norm (i.e., it determines when individuals should act in accordance with the rule);

Characteristics of the individual (it is determined which types of individuals should adhere to of this rule);

Definition of the prescribed action;

Description of the sanctions for failure to comply with the instructions (they allow the individual to determine what costs he will incur if he does not adhere to the rule);

Characteristics of the guarantor of the norm, i.e. a subject that applies sanctions to a rule violator.

Thus, a change in a rule is not a change in behavior, which can be caused by various (even random) reasons, but a change in the content of the components of the rule that allow individuals to make decisions about their actions.

Basic model of institutional change

a) the concept of Harold Demsetz.

Changes in institutions are caused by changes in the relative prices of economic resources. The factor explaining institutional changes in this concept is efficiency, understood as an increase in value or wealth in society.

B) D. North's model of institutional change.

This model was put forward in 1990 by D. North. This model assumes the following logic of institutional changes:

1) changes in the level of knowledge lead to the emergence of new technologies;

2) new technologies change the relative price levels for resources;

3) new price levels create incentives for owners of resources that are potentially increasing in value to transform property rights to them;

4) new levels also lead to the emergence of rules that maximize the value of using such rights;

5) at the same time, non-zero transaction costs in the political market prevent the implementation of all potentially possible institutional changes useful for creating value.

4.2.1. What is a "full contract"?

If the parties to a transaction could enter into a complete contract that clearly defined what each party should do under all circumstances, and allocated costs and benefits in any eventuality, and also provided for sanctions in the event of failure by one of the parties, then There would be no problems with the implementation of the transaction and the motivation of its participants. However, the requirements for a full contract are very strict. What should, for example, be included in the full contract between HSE and a student studying on a commercial basis?
First of all, both the student and the HSE administration must foresee and clearly record in the contract all circumstances that may arise during the execution of the contract, for example:
- subjects that will be studied throughout the course of study, as well as the department and teacher who will teach them, the location of the classes, i.e., a detailed schedule of classes for all years of the student’s studies;
- the state of the labor market for graduates with an appropriate diploma, because there may be an overproduction of these specialists, and the graduate will not be able to find a job;
— all sorts of political events that may affect the value of a diploma or the possibility of continuing education;
- natural disasters that may prevent the parties from fulfilling the terms of the contract (fire, flood, etc.).
This list of possible contingencies can be continued indefinitely, because even those contingencies whose probability is so low that the parties may consider them impossible should be included here.
Next, you should agree on the distribution of responsibilities of the parties in the event of each of the situations provided for in the contract and the corresponding change in tuition fees, i.e. about the distribution of costs and benefits. Should tuition fees be reduced if there is an oversupply of these specialists in the labor market? Should the tuition fee change if an outstanding scientist invited by the HSE began giving lectures shortly after the start of his studies? Which party should bear the risk of fire or any other natural disaster? Which party should bear the risk in the event of illness of a teacher for whom a replacement has not been found?
Why are real contracts always incomplete? What prevents a full contract from being concluded? [Milgrom, Roberts, 1999, vol. 1, p. 192-197].
Firstly, this is the limitation of human foresight, who cannot foresee all unforeseen circumstances. Events can always happen that the parties cannot even imagine at the time of entering into the contract. Milgrom and Roberts give the following example. In 1980, due to the input Soviet Union troops to Afghanistan, the US team boycotted the Olympic Games in Moscow. American companies that bought television time to place their advertisements did not provide for such an opportunity in their contracts, since hardly anyone even thought that this could happen. Purchased television time was greatly devalued as Americans showed less interest in the games due to the lack of American athletes participating. For many business participants, the 1998 default in Russia became an unforeseen circumstance that seriously worsened their economic situation as a result of the impossibility of fulfilling contracts.
Secondly, these are the costs of settlements and negotiations when concluding contracts. Even if a change in circumstances can be foreseen, but they seem unlikely, or if the parties do not have experience in planning these circumstances, which could be used to guide the conclusion of contracts, and also if the costs of taking these circumstances into account in contracts are very high, and the time spent on negotiations could be used more productively, the parties are likely to forego detailed contractual descriptions of these circumstances and costly efforts to allocate risk.
Thirdly, this is the inaccuracy and complexity of the language in which the contracts are written. As the American judge Learned Hand wrote: “there is a limit<...>behind which the tongue can no longer withstand the load” [Cit. Based on: Mozolin, Farnsworth E.A., 1988. p. 92]. Contracts are usually written in language that only lawyers can understand, but even this specialized language is often highly imprecise and requires additional interpretation by the court if disputes arise. The more contingency clauses written into a contract, the greater the likelihood of disputes arising. Norms can also be inaccurate. contract law applied by the court when resolving disputes in difficult situations. Russian norms civil law provide for the possibility of terminating concluded contracts due to a significant change in circumstances. Article 451 of the Civil Code of the Russian Federation contains a definition significant change circumstances: “A change in circumstances is considered significant when they have changed so much that, if the parties could have reasonably foreseen it, the contract would not have been concluded by them at all or would have been concluded on significantly different terms.” This definition is very abstract in nature and specific events, phenomena and facts that can be classified as significantly changed circumstances must be defined in judicial procedure [Civil Code Russian Federation, 1999]. When disagreements arise about the language of a contract, each party to the dispute insists on its own understanding of its meaning. An example of such disagreement is the following case, in which the word “chicken” appeared in the contract between an American exporter and a Swiss importer. After the seller sent by sea chickens suitable for stewing, the Swiss, having received them, went to court, claiming that he was buying young chickens suitable for boiling or roasting. The seller argued that the name of the product was used in a broad sense, including chickens. The court assumed that during the conclusion of the contract, each party put its own meaning into this name, which resulted in misunderstanding. The court resolved the dispute in favor of the seller. Although the buyer attached a narrower meaning to the word “chicken,” it was not proven that the seller had reason to know this [Mozolin, Farnsworth, 1988, p. 89].
And finally, fourthly, certain activity or information that has a material effect on the benefit received by the parties may not be observable by a third party and may not be verifiable in court. Therefore, when entering into contracts, parties leave gaps that will be filled when the time comes to make changes.
Incomplete contracts allow the parties to respond flexibly to unforeseen circumstances, but at the same time they pose the problem of imperfect obligations of the contracting parties and the danger of post-contract opportunism. Therefore, when there is a choice between a more or less complete contract, then in preparing this contract some compromise is always reached between protection against opportunistic behavior, on the one hand, and the ability to flexibly adapt to changing circumstances, on the other hand.
The reasons for the incompleteness of a contract described above are the limitations of human foresight, the inability to provide for all possible contingencies, the too high costs of making calculations when distributing risk in contracts, the lack of an accurate and sufficiently rich language to describe all possible circumstances and the distribution of responsibility, as well as the impossibility of verifying information by a third party. defined by one concept - “bounded rationality” of economic agents. This concept was introduced by Simon, who argued that the human mind is a limited resource and also needs to be conserved [Simon, 1993]. People cannot solve complex problems instantly, accurately and cost-effectively; they cannot find mathematical optimal solution complex problems. However, they behave deliberately rationally, trying to achieve the best solution under given constraints, which, however, does not mean that the result will be optimal. A person’s rationality is limited because he cannot know all the alternatives and is not able to calculate all the consequences of his decision. Economic agents form a certain aspiration level in relation to the alternative they want to find. The level of aspiration is an individual’s idea of ​​what he can count on. As soon as an individual finds an alternative that matches his level of aspiration, he stops searching and chooses this alternative. Simon called this procedure the search for a satisfactory (acceptable) option (satisficing). At the same time, the levels of aspirations are mobile: in a favorable external environment they grow, in an unfavorable external environment they fall.