Information Acquisition Activity and Damage Measures
AbstractWe examine the effect of various damage measures on the buyer's information acquisition efforts when the buyer can learn a signal about the production cost after a contract. We find that contrary to standard results, liquidated damages induce neither efficient performance nor efficient reliance, if a buyer decides to learn the signal, and that they do not provide a buyer with the incentive to acquire information. Thus, if acquiring information is costly enough, liquidated damages yield the highest social welfare among various damage measures, but otherwise, no damages, providing the incentive to acquire information, may perform better.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 162 (2006)
Issue (Month): 4 (December)
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Web page: http://www.mohr.de/jite
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
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