Reliance Investments, Expectation Damages and Hidden Information
AbstractA setting of reliance investments is explored where one of the parties to a contract obtains private information concerning his utility or cost function that remains hidden to the other party and to courts. As a consequence, it will be a difficult task to award expectation damages corrrectly to a party with private information who sufffers from breach of contract. While a revelation mechanism would exist that leads to the first best solution, assessing expectation damages correctly turns out to be at odds with ex post efficiency. I conclude that, under asymmetric information, the performance of expectation damages falls short of what more general mechanisms could achieve.
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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 162.
Date of creation: Sep 2006
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More information through EDIRC
reliance investments; expectation damages; breach of contract; hidden information;
Find related papers by JEL classification:
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-23 (All new papers)
- NEP-LAW-2006-09-23 (Law & Economics)
- NEP-UPT-2006-09-23 (Utility Models & Prospect Theory)
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