theory of incomplete contracts

The theory of incomplete contracts suggests that not all future circumstances or actions can be predicted or specified in a contract. When parties enter an agreement, they cannot foresee every possible outcome, leading to gaps or ambiguities in the contract. This can cause disputes or unintended consequences. Incomplete contracts often require flexibility and trust between parties to resolve unforeseen issues as they arise, rather than relying solely on written terms. This theory highlights the limitations of contracts in managing all aspects of complex relationships and transactions.