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The Design of Contracts and Remedies for Breach

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  • Steven Shavell

Abstract

In the first part of this article, (hypothetical) contracts providing for all possible uncertain contingencies are considered. In the next part, contracts providing for only some contingencies are examined and are shown to be advantageous, due both to difficulties that could arise in making and enforcing contingent terms and to the presence of implicit substitutes for them. In the following, major part of the article, two of these substitutes for contingent terms are analyzed: remedies for breach, and the opportunity for renegotiation; the existence of both is demonstrated to induce parties to behave approximately as they would under detailed contracts.

Suggested Citation

  • Steven Shavell, 1984. "The Design of Contracts and Remedies for Breach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(1), pages 121-148.
  • Handle: RePEc:oup:qjecon:v:99:y:1984:i:1:p:121-148.
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