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Breach remedies inducing hybrid investments

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  • Göller, Daniel
  • Stremitzer, Alexander

Abstract

We show that parties in bilateral trade can rely on the default common law breach remedy of ‘expectation damages’ to simultaneously induce 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.

Suggested Citation

  • Göller, Daniel & Stremitzer, Alexander, 2014. "Breach remedies inducing hybrid investments," International Review of Law and Economics, Elsevier, vol. 37(C), pages 26-38.
    • Handle: RePEc:eee:irlaec:v:37:y:2014:i:c:p:26-38
    DOI: 10.1016/j.irle.2013.06.005
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    References listed on IDEAS

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    Cited by:

    1. Daniel Göller, 2014. "Expectation Damages and Bilateral Cooperative Investments," American Law and Economics Review, Oxford University Press, vol. 16(2), pages 473-498.

    More about this item

    Keywords

    Breach remedies; Incomplete contracts; Hybrid investments; Cooperative investments; Selfish investments;

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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