Cooperative Investments Induced by Contract Law
AbstractLecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004This paper revisits the economic analysis of contract law for a setting of cooperative investments. While Che and Chung (1999) have shown that expectation damages perform rather poorly, the present paper argues that this negative result follows from their impicit assumption of unilateral expectation damages. Yet, the very nature of cooperative investments gives rise to the possibility that both parties may claim expectation damages. It is shown that such a regime of bilateral expectation damages provides the incentives for the first best solution even in a framework of binary choice where, for selfish investments, the traditional overreliance result would hold.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 10.
Date of creation: Jun 2004
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Find related papers by JEL classification:
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- D62 - Microeconomics - - Welfare Economics - - - Externalities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-29 (All new papers)
- NEP-LAW-2005-10-29 (Law & Economics)
- NEP-REG-2005-10-29 (Regulation)
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.:
- Steven Shavell, 1980. "Damage Measures for Breach of Contract," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 11(2), pages 466-490, Autumn.
- William P. Rogerson, 1984. "Efficient Reliance and Damage Measures for Breach of Contract," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 39-53, Spring.
- Yeon-Koo Che & Tai-Yeong Chung, 1999.
"Contract Damages and Cooperative Investments,"
RAND Journal of Economics,
The RAND Corporation, vol. 30(1), pages 84-105, Spring.
- Che, Y.K. & Chung, Y.T., 1996. "Contract Damages and Cooperative Investments," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9612, University of Western Ontario, Department of Economics.
- Aaron S. Edlin & Stefan Reichelstein, 1995.
"Holdups, Standard Breach Remedies, and Optimal Investment,"
NBER Working Papers
5007, National Bureau of Economic Research, Inc.
- Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, American Economic Association, vol. 86(3), pages 478-501, June.
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