All contracts are incomplete. However, incomplete contracts differ in several key dimensions. Many contracts are incomplete because the parties refuse to condition the performance of future states that they cannot meet or verify in court. In these cases, incompleteness is exogenous for the contract. However, other agreements appear to be “deliberately” incomplete, as the parties do not condition the performance of the available and verifiable measures that could be fixed in the contract at a relatively low cost. The incompleteness of these agreements is therefore endogenous, indicating that the parties had other reasons for not specifying the conditions in question. Q: So some kind of underlying problem that I`m thinking about behind this issue is a situation where there`s some kind of business unit that`s more inclined to bend or pollute environmental regulations if some are, how cost-effective they do it and where the power structure to prevent them from doing so is quite weak. If they might go through a collaborative process for public relations purposes or something, I think the enforcement mechanisms to prevent them from breaking those rules are very loose. An almost self-forced agreement, what makes an almost self-forced agreement? First, that all contingencies are defined in the agreement, so that not everything stops completely if the step one after another is not followed exactly by step two of the second part, because the conditions have changed. “Oh and it wasn`t spelled, so I can`t imagine doing what I said I would,” and then it all falls apart. But if, even in the unlikely circumstances, I leave, this second step still involves it, but if it happens, two steps change. The more contingencies you express in the agreement, the more likely it is that the agreement will be imposed on itself. Second, if I include monitoring in the agreement, so there is a neutral monitor that calls the second page and says, “It`s your turn, they`ve done step 1.” You may not think they did stage 1, but I`m saying they did the first step, and now it`s your turn to do step two.
They are putting in place a neutral monitoring of the agreement in order to obtain the probability that it is necessary.