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On the Importance of Default Breach Remedies

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Author Info

  • Randolph Sloof

    ()

  • Hessel Oosterbeek

    ()

  • Joep Sonnemans

    ()
    (University of Amsterdam)

Abstract

Theory predicts that default breach remedies are immaterial whenever contracting costs are negligible. Some experimental studies, however, suggest that in practice default rules do matter, as they may affect parties' preferences over contract terms. This paper presents results from an experiment designed to address the importance of default breach remedies for actual contract outcomes. We find that default rules do have an influence. The reason for this is not that contract proposals and/or responses are biased towards the default, but rather that parties often disagree over what the best contract is and therefore end up with the default. This discussion paper has resulted in a publication in the Journal of Institutional and Theoretical Economics , 163(1) 5-22.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-082/1.

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Date of creation: 28 Sep 2006
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Handle: RePEc:dgr:uvatin:20060082

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Web page: http://www.tinbergen.nl

Related research

Keywords: breach remedies; default remedies; experiments;

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Cited by:
  1. Randolph Sloof & C. Mirjam van Praag, 2008. "The Effect of Noise in a Performance Measure on Work Motivation," Tinbergen Institute Discussion Papers 08-074/1, Tinbergen Institute.
  2. Isabel Marcin & Andreas Nicklisch, 2014. "Testing the Endowment Effect for Default Rules," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2014_01, Max Planck Institute for Research on Collective Goods.

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