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On and Off Contract Remedies

  • Brooks, Richard
  • Stremitzer, Alexander

A party dissatisfied with the contractual performance of a counterparty is typically able to pursue a variety of legal recourses. Within this apparent variety lurk two fundamental alternatives. The aggrieved party may (i) “affirm†the contract and seek money damages or specific performance; or (ii) “disaffirm†the contract with the remedy of rescission and restitution. This simple dichotomy of contract remedies applies broadly in both common law and civil law practice. We show here that this remedial regime allows parties to write simple contracts that induce first-best cooperative investments.

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Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 290.

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Date of creation: Dec 2009
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Handle: RePEc:trf:wpaper:290
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  9. Edlin, Aaron S, 1996. "Cadillac Contracts and Up-Front Payments: Efficient Investment under Expectation Damages," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 98-118, April.
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  16. Urs Schweizer, 2006. "Cooperative investments induced by contract law," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 134-145, 03.
  17. Georg Nöldeke & Klaus M. Schmidt, 1992. "Option Contracts and Renegotiation - A Solution to the Hold-Up Problem," Discussion Paper Serie A 417, University of Bonn, Germany, revised Aug 1993.
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  19. Steven Shavell, 1980. "Damage Measures for Breach of Contract," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 466-490, Autumn.
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