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Those crazy transaction costs: on the irrelevance of the equivalence between monetary damages and specific performance

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  • Gregory DeAngelo

  • Steven Medema

Abstract

The Coase theorem tells us that monetary damages and specific performance remedies for breach of contract have identical effects when transaction costs are zero. This has become a standard part of the literature on the economics of contract law. This note argues that the traditional view is somewhat misguided, as monetary damages and specific performance remedies are unnecessary in a zero transaction costs world. We go on to show how the presence of transaction costs impact the decisions of contracting parties as between the inclusion of liquidated damages clauses in contracts and resorting to litigation that could result in the application of either monetary damages or specific performance remedies. Copyright Springer Science+Business Media, LLC 2014

Suggested Citation

  • Gregory DeAngelo & Steven Medema, 2014. "Those crazy transaction costs: on the irrelevance of the equivalence between monetary damages and specific performance," European Journal of Law and Economics, Springer, vol. 37(2), pages 269-275, April.
    • Handle: RePEc:kap:ejlwec:v:37:y:2014:i:2:p:269-275
    DOI: 10.1007/s10657-011-9285-0
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    References listed on IDEAS

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    1. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    2. Dahlman, Carl J, 1979. "The Problem of Externality," Journal of Law and Economics, University of Chicago Press, vol. 22(1), pages 141-162, April.
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    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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