Urs Schweizer (Department of Economics, University of Bonn, Adenauerallee 24, D-53113 Bonn, Germany)
Abstract
This 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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Paper provided by 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 in its series Discussion Papers with number
10.
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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
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