Completing Contracts in the Shadow of Costly Verification
研究了验证成本如何作为筛选承诺人诉讼激励和惩罚违约方的机制，并证明当事人可能偏好昂贵信号而非廉价信号，为合同设计提供了更全面的视角。
Contract theory typically holds that verification costs are obstacles to complete contracting; yet real‐world contracts often contain provisions that seem costly to verify. We show how verification (or litigation) costs operate as a screen on the promisee’s incentive to sue and as an effective sanction against the breaching promisor. As long as the court’s judgment is correlated with the promisor’s behavior, the parties can design a set of prices (including damages) to provide additional incentive to the promisor through an off‐the‐equilibrium, credible litigation threat. We show that the parties may prefer to adopt a costly signal over a costless signal. Rather than focus solely on either the problems of adjudication or those of contracting (without sufficient regard to how the disputes will be resolved in the future), we take a more comprehensive approach by looking at the design of contracts in anticipation of the path of the adjudication process.