Legal uncertainty and contractual innovation

Innovative contracts are important for economic growth, but when firms face uncertainty as to whether contracts will be enforced, they may choose not to innovate. Legal uncertainty can arise if a judge interprets the terms of a contract in a way that is antithetical to the intentions of the parties to the contract. Or sometimes a judge may understand the contract but overrule it for other reasons. How does legal uncertainty affect firms' decisions to innovate? In this article, Yaron Leitner explores issues related to legal uncertainty, particularly the amount of discretion judges have and the types of evidence they consider.