Of incomplete contracts (also relational contract) also in the context of the transaction cost theory one speaks, if with a contract between market participants not all eventualities ex ante contractually be specified and/or considered can. They are generally only framing and/or coat contracts.

Characteristics of incomplete contracts:

• they are implicit
• they are as far as possible informal
• they are only reduced obligatory
• they are very flexible
• Loyalty to a contract hardly forcable

From the last point the problem results that the participants, particularly with asymmetrical information, have an incentive to the opportunistischen behavior. The contracts are thus time inconsistent.

Mechanisms around opportunistisches behavior to exclude are:

• long-term contracts (utilization of short term advantage irrationally)
• Self obligation (Reputation)
• reciprocal Altruismus (both contracting parties do mutually "“property"”)

The principle aluminum agent theory examines possibilities for the overcoming of the time inconsistency in contracts.

Additional contract modifications

During the contract running time changes are agreed upon, which result from Nachverhandlungen. This contradicts the principle Pacta sunt servanda - contracts are to be kept.

Investigation article are the result effects of such a measure.

With credit relations Nachverhandlungen run ideal-typically as follows off:

• The market value of the remaining customer business is determined.
• A transfer fee is specified
• The condition contribution bar value is determined.

Then a remuneration is specified if necessary, for example with repayment before maturity.

Uncertain subsequent business

To uncertain subsequent business belong:

• Prolongation
• roll over credit
• embedded option (with bank products choice rights are embedded, whereby the payment stream is partly or not at all firm)

Articles in category "Incomplete contract"

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