Expectation Damages and Bilateral Cooperative Investments
AbstractWe examine the efficiency of the standard breach remedy expectation damages in a setting of bilateral cooperative investment by a buyer and a seller. Contracts may specify a required quality level and an upper bound to the cost of production. We find that it is optimal to write an augmented Cadillac contract that sets one threshold such that it cannot be met with positive probability together with an extreme price. Then, one of the parties becomes a residual claimant of the trade relationship. The other threshold can be used to balance the incentives of the other party. --
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Bibliographic InfoPaper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century with number 62047.
Date of creation: 2012
Date of revision:
Find related papers by JEL classification:
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-12 (All new papers)
- NEP-LAW-2013-01-12 (Law & Economics)
- NEP-MIC-2013-01-12 (Microeconomics)
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- repec:att:wimass:9714 is not listed on IDEAS
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