Evidence Disclosure and Verifiability
35 Pages Posted: 13 Aug 2000
Date Written: September 2001
Abstract
We explore the conceptual basis of "verifiability" by explicitly modeling the process of evidence production in contractual relationships of complete information. We study how the contracting parties' incentives to disclose evidence (in the form of documents) narrows the set of enforceable contracts and affects what can be considered verifiable. Our Full Disclosure Result characterizes verifiability purely on the basis of whether documents exist in various contingencies. This result identifies conditions under which "message game phenomena" cannot arise, so that the only useful evidence is "hard" in the sense of ruling out some contingencies. The required conditions include opportunities for parties to engage in side-dealing and renegotiation during the enforcement phase. We also prove a version of the revelation principle - our Honest Disclosure Result - that clarifies the meaning of "truthful reporting." We briefly discuss the relevance of our results to the functioning of legal institutions.
Keywords: Contracting, renegotiation, side contracts, coalition-proofness, contract enforcement
JEL Classification: C70, D74, K10
Suggested Citation: Suggested Citation
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