Contractual Complexity and the Cognitive Load of R&D Alliance Contracts

42 Pages Posted: 14 Apr 2008

See all articles by John Hagedoorn

John Hagedoorn

Maastricht University, School of Business and Economics

Geerte G. Hesen

University of Maastricht

Date Written: April 13, 2008

Abstract

We offer a new perspective on measuring the complexity of inter-firm contracts. We define complex contracts as those contracts that contain many elements (clauses) with a relatively large number of interdependencies that also impose a significant cognitive load upon contract parties. Previous studies on contractual complexity employ objective measures such as the number of pages, the amount of kilobytes or the number of provisions to measure this complexity. Following some suggestions in the literature, we argue that the degree to which a contract imposes a cognitive load upon contract parties should be taken as another important dimension of contractual complexity. We develop a conceptual model of the complexity of contracts using a multidimensional perspective where both objective and subjective dimensions are taken into account. Our empirical analysis combines a sample of nearly 400 R&D alliance contracts in the biopharmaceutical industry with a measurement of the cognitive load of these contracts. Our findings show that quantitative, objective measures of complexity, such as length, and objective as well as subjective elements of the cognitive load of contracts, i.e. the information processing effort that contractual parties have to make, do indeed measure different aspects of contractual complexity.

Keywords: contracts, cognitive load

JEL Classification: K12

Suggested Citation

Hagedoorn, John and Hesen, Geerte G., Contractual Complexity and the Cognitive Load of R&D Alliance Contracts (April 13, 2008). 3rd Annual Conference on Empirical Legal Studies Papers, Available at SSRN: https://ssrn.com/abstract=1119802 or http://dx.doi.org/10.2139/ssrn.1119802

John Hagedoorn (Contact Author)

Maastricht University, School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Geerte G. Hesen

University of Maastricht ( email )

P.O. Box 616
Maastricht, Limburg 6200MD
Netherlands

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