IDEAS home Printed from https://ideas.repec.org/a/ucp/scerev/doi10.1086-704390.html
   My bibliography  Save this article

Installment Contracts and Material Breach

Author

Listed:
  • Bernhard Ganglmair

Abstract

Default rules in contract law grant a buyer the right to terminate a contract over the recurrent delivery in multiple periods (i.e., an installment contract) and cancel future deliveries if, and only if, past deliveries by the seller are sufficiently defective (putting the seller in “material breach”). Using an incomplete contracts framework with buyer’s relationship-specific investment, I show that, absent other contractual solutions, an installment contract can solve the buyer’s holdup problem and implement the “first-best” (i.e., efficient) outcome. Multiple independent contracts over one delivery each, installment contracts without the right to terminate, or installment contracts with noncontingent rights to terminate cannot solve the buyer’s holdup problem. I also show that the optimal termination right is not too buyer friendly when the buyer has low bargaining power in ex post renegotiations. This result serves as an economic rationale for the restriction of termination rights to cases of material breach of contract.

Suggested Citation

  • Bernhard Ganglmair, 2018. "Installment Contracts and Material Breach," Supreme Court Economic Review, University of Chicago Press, vol. 26(1), pages 1-46.
  • Handle: RePEc:ucp:scerev:doi:10.1086/704390
    DOI: 10.1086/704390
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/704390
    Download Restriction: Access to the online full text or PDF requires a subscription.

    File URL: http://dx.doi.org/10.1086/704390
    Download Restriction: Access to the online full text or PDF requires a subscription.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bernhard Ganglmair, 2008. "Breakup of Repeat Transaction Contracts, Specific Investment, and Efficient Rent-Seeking," JEPS Working Papers 08-001, JEPS.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:scerev:doi:10.1086/704390. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division). General contact details of provider: https://www.journals.uchicago.edu/SCER .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.