If a seller delivers a good non-conforming to the contract, Article 2 of the UCC as well as European warranty law allows consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer resorts to "opportunistic termination", i.e. takes non- conformity as a pretext to get rid of a contract he no longer wants. We show that the possibility of opportunistic termination might actually have positive ef- fects. Under some circumstances, it will lead to redistribution in favour of the buyer without any loss of efficiency. Moreover, by curbing the monopoly power of the seller, a regime involving termination increases welfare by enabling a more efficient output level in a setting with multiple buyers.
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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number
bgse7_2007.
Length: 37 Date of creation: May 2007 Date of revision: Handle: RePEc:bon:bonedp:bgse7_2007
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany Fax: +49 228 73 9221 Web page: http://www.bgse.uni-bonn.de/index.php?id=494
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Alexander Stremitzer, 2008.
"Opportunistic Termination,"
Discussion Papers
226, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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Find related papers by JEL classification: K12 - Law and Economics - - Basic Areas of Law - - - Contract Law C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory L40 - Industrial Organization - - Antitrust Issues and Policies - - - General D30 - Microeconomics - - Distribution - - - General
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