MGEC71H3 Lecture Notes - Lecture 9: Futures Contract, Future Us, Maine State Route 100
4 Oct 2017
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Maximizing clause: the best point (outcome) of a contract. Capital constraints: if they cant easily sell it off. Franchise holder want to protect yourself from others from degrading your company"s reputation. Don"t typically benefit both parties immediately (coase bargain to maximizing outcome = most surplus) Individual clause may not be fair but the entire clause is value maximized. Contract theory: every clause in the contract is efficient. Moving from this contract to -------------- this contract. Every clause in the contract is value maximized if you believe in bargaining theory (most efficient outcome) Standard rule: carry out contract or pay damages. Damages rule: gets you the right number of contracts. Profit = 0 all the time p = . 99. P 200 p = . 99 p = . 01. = p = . 99 p = . 01 p =. 99 p = . 01. Test for impossibility: test for value over .
