Incomplete Contracting Theory and EU Treaty Provisions: An Empirical Approach

This paper investigates interpretational ambiguity with reference to the ECC Treaty, and analyses its consequences. Theoretically, it suggests that incomplete contracts generate interpretational ambiguity, due to transaction costs but also to the inherent variability of language. Methodologically, the paper utilises an automated text analysis approach to measure the ambiguity of Treaty provisions on a number of indicators. Empirically, the analysis demonstrates a significant association between the indicators of article ambiguity and the number of laws and court rulings. It thus provides support for studies arguing that supranational actors including the Commission and Court of Justice will utilize ambiguity to further their institutional and political agendas.