Most contracts that individuals enter into are not written from scratch but depend upon forms and
terms that have been successful in the past. In this paper we study the structure of the form construction
contracts published by the American Institute of Architects (AIA). We show that these contracts are an
e¢ cient solution to the problem of procuring large, complex projects when unforeseen contingencies are
inevitable. This is achieved by carefully structuring the ex post bargaining game between the Principal
and the Agent. The optimal mechanism corresponding to the AIA construction form is consistent with
decisions of the courts in several prominent, but controversial, cases, and hence provides an economic
foundation for a number of the common-law excuses from performance. Finally, the case of form contracts
for construction is an example of how markets, as opposed to private negotiation, can be used to determine
e¢ cient contract terms.

This paper uses data from the 1990s to examine changes in the wages, employment, and
e¤ort of nurses in California hospitals following takeovers by large chains. The market for
nurses has been described as a classic monopsony, so that one might expect increases in rm
market power to be associated with declines in wages. However, a basic contracting model
predicts e¤ects on e¤ort rather than on wages, which is what we see in the data nurses
see few declines in wages following takeovers, but see increases in the number of patients per
nurse, our measure of e¤ort. We show that our results are also consistent with an extended
version of the monopsony model that considers e¤ort, and allows for revenue shifts following
a takeover. Finally, we nd that these changes are similar in the largest for-pro t and
non-pro t chains, suggesting that market forces are more important than institutional form.