Breach Remedies Inducing Hybrid Investments
AbstractWe show that parties in bilateral trade can rely on the default common law breach remedy of 'expectation damages' to induce simultaneously first-best relationship-specific investments of both the selfish and the cooperative kind. This can be achieved by writing a contract that specifies a sufficiently high quality level. In contrast, the result by Che and Chung (1999) that 'reliance damages' induce the first best in a setting of purely cooperative investments, does not generalize to the hybrid case. We also show that if the quality specified in the contract is too low, 'expectation damages' do not necessarily induce the ex-post efficient trade decision in the presence of cooperative investments.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Yale University, Department of Economics in its series Working Papers with number 72.
Date of creation: Oct 2009
Date of revision:
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-11 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Urs Schweizer, 2006. "Cooperative investments induced by contract law," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 134-145, 03.
- Stremitzer, Alexander, 2008.
"Standard Breach Remedies, Quality Thresholds, and Cooperative Investments,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
242, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Alexander Stremitzer, 2009. "Standard Breach Remedies, Quality Thresholds, and Cooperative Investments," Bonn Econ Discussion Papers bgse4_2009, University of Bonn, Germany.
- Andreas Roider, 2004.
"Asset Ownership and Contractibility of Interaction,"
RAND Journal of Economics,
The RAND Corporation, vol. 35(4), pages 787-802, Winter.
- Andreas Roider, 2002. "Asset Ownership and Contractability of Interaction," Bonn Econ Discussion Papers bgse12_2002, University of Bonn, Germany, revised May 2003.
- Shavell, Steven, 1984. "The Design of Contracts and Remedies for Breach," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 121-48, February.
- Maskin, Eric & Moore, John, 1999.
"Implementation and Renegotiation,"
Review of Economic Studies,
Wiley Blackwell, vol. 66(1), pages 39-56, January.
- Eric Maskin & John Moore, 1999. "Implementation and Renegotiation," Harvard Institute of Economic Research Working Papers 1863, Harvard - Institute of Economic Research.
- Rosenkranz, Stephanie & Schmitz, Patrick W., 1999.
"Know-how disclosure and incomplete contracts,"
12533, University Library of Munich, Germany.
- Ilya Segal & Michael D. Whinston, 2002. "The Mirrlees Approach to Mechanism Design with Renegotiation (with Applications to Hold-up and Risk Sharing)," Econometrica, Econometric Society, vol. 70(1), pages 1-45, January.
- Göller, Daniel, 2012. "Expectation Damages and Bilateral Cooperative Investments," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62047, Verein für Socialpolitik / German Economic Association.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.