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Up-front payment under RD rule

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  • Ho-Chyuan Chen

Abstract

This paper explores the effect of an up-front payment to contracts under the reliance damage measure. We find that the efficiency in most cases fails, but can be obtained by a high enough total payment to assume away the seller’s breach, a high enough up-front payment to ensure that the seller does not sue, and a high enough trading price to ensure the buyer’s breach when the undesirable state occurs. Edlin’s device (1996), which has a very low trading price to assume away the buyer’s breach and a proper up-front payment to entice the seller to sign, fails to achieve the efficiency under the reliance damage measure. Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Ho-Chyuan Chen, 2004. "Up-front payment under RD rule," Review of Economic Design, Springer;Society for Economic Design, vol. 9(1), pages 1-10, December.
    • Handle: RePEc:spr:reecde:v:9:y:2004:i:1:p:1-10
    DOI: 10.1007/s10058-004-0116-4
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