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Damage Measures for Breach of Contract

  • Steven Shavell

This article studies rules of "damage measures" that determine how much money must be paid by a party who defaults on a contract to the other party to the contract. The theme of the article is that damage measures serve as a substitute for completely specified contracts. In particular, it is shown that under an incompletely specified contract damage measures can induce parties to behave in a way that approximates what they would have explicitly agreed upon under a fully specified contract. Moreover, it is argued on familiar lines that because it is often costly or impossible to make contractual provisions for contingencies at a very detailed level, there is an evident need for such substitutes for well-specified contingent contracts as are afforded by damage measures

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Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 11 (1980)
Issue (Month): 2 (Autumn)
Pages: 466-490

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Handle: RePEc:rje:bellje:v:11:y:1980:i:autumn:p:466-490
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