Reciprocity and Legal Relief in Breach of Contract

This chapter identifies, in the existing empirical evidence, some of the reasons for why individuals engage in retaliation and punishment of others, while also considering why individual behavior may differ when parties are bound to each other by contract, and hence by an obligation, they voluntarily and autonomously entered into. It endogeneizes, in the traditional model of contractual behavior developed in the Economic Analysis of Law, the possibility of retaliation by the promisee together with the possibility to seek legal redress, and how they can both serve to induce promisors to perform, each with its own costs and benefits. It then considers some of the elements that may lead promisees to retaliate to breach of promise, and that are subject to experimental scrutiny in chapter five: the loss of expectancy endured by the promisee, the inefficiency created by breach, and the unfairness of the resulting distribution. Lastly, the chapter explains how legal remedies are superior to retaliation to induce performance of promises because instead of causing, whenever implemented, a deadweight loss, as retaliation causes, legal remedies such as damages only redistribute wealth between the parties, and social welfare is thereby not impaired.