Suppose a new contracting environment with an economic environment that looks more uncertain.This new contract will result in

Question

Quizplus · Accepted Answer

In an uncertain economic environment, the risk associated with the contract will increase, which will increase the marginal cost for the parties involved. To mitigate this increased risk, the parties may decide to opt for a shorter contract that allows for more frequent renegotiation or termination. Therefore, an increase in marginal cost will result in a shorter optimal contract.

Suppose a New Contracting Environment with an Economic Environment That