Contract Damages and Cooperative Investments

Cooperative Investments Induced by Contract Law

This paper revisits the economic analysis of contract law for a setting of cooperative investments. While Che and Chung (1999) have shown that expectation damages perform rather poorly, the present paper argues that this negative result follows from their impicit assumption of unilateral expectation damages. Yet, the very nature of cooperative investments gives rise to the possibility that both...

Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule

Contract design and non-cooperative renegotiation

We study a contract design setting in which the contracting parties cannot commit not to renegotiate previous contract agreements. In particular, we characterize the outcome functions that are implementable for an uninformed principal and an informed agent if, having observed the agent’s contract choice, the principal can offer a new menu of contracts in its place. An outcome function can be im...

Specific Performance versus Damages for Breach of Contract

When would parties to a contract want performance to be specifically required, and when would they prefer payment of money damages to be the remedy for breach? This fundamental question is studied here, and an answer is provided that is based on a simple distinction between contracts to produce goods and contracts to convey property. Setting aside qualifications, the conclusion for breach of co...

Standard Breach Remedies , Quality Thresholds , and Cooperative Investments

When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling " expectation damages " close to legal practice, we show that the default remedy of contract law induces the first best. Hence, there is no need for privately stipulated remedies. Yet, in order to lower informational requirements of courts, ...