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Incomplete Contracts with Asymmetric Information: Exclusive Versus Optional Remedies

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  • Ronen Avraham
  • Zhiyong Liu
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    Abstract

    Scholars have been debating for years the comparative advantage of damages and specific performance. Yet, most work has compared a single remedy contract to another single remedy contract. But contract law provides the non-breaching party with a variety of optional remedies to choose from in case of a breach, and parties themselves regularly write contracts which provide such options. In this article, we start filling this gap by studying multi-remedy contracts. Specifically, we compare a contract that grants the non-breaching party an option to choose between liquidated damages and specific performance with an exclusive remedy contract, which restricts the non-breaching party's remedy to liquidated damages only. Copyright 2006, Oxford University Press.

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    File URL: http://hdl.handle.net/10.1093/aler/ahl011
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    Bibliographic Info

    Article provided by Oxford University Press in its journal American Law and Economics Review.

    Volume (Year): 8 (2006)
    Issue (Month): 3 ()
    Pages: 523-561

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    Handle: RePEc:oup:amlawe:v:8:y:2006:i:3:p:523-561

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    References

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    1. Edlin, Aaron S, 1996. "Cadillac Contracts and Up-Front Payments: Efficient Investment under Expectation Damages," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 98-118, April.
    2. Chung, Tai-Yeong, 1992. "On the Social Optimality of Liquidated Damage Clauses: An Economic Analysis," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 280-305, April.
    3. Georg Nöldeke & Klaus M. Schmidt, 1992. "Option Contracts and Renegotiation - A Solution to the Hold-Up Problem," Discussion Paper Serie A 417, University of Bonn, Germany, revised Aug 1993.
    4. Schmitz, Patrick W., 2001. "The Hold-Up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," MPRA Paper 12562, University Library of Munich, Germany.
    5. William P. Rogerson, 1984. "Efficient Reliance and Damage Measures for Breach of Contract," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 39-53, Spring.
    6. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    7. Steven Shavell, 1980. "Damage Measures for Breach of Contract," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 466-490, Autumn.
    8. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-59, April.
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    Cited by:
    1. Tim Friehe & Tobias H. Tröger, . "Sequencing of Remedies in Sales Law," German Working Papers in Law and Economics 2008-1-1224, Berkeley Electronic Press.

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