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Standard Breach Remedies, Quality Thresholds, and Cooperative Investments

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  • Stremitzer, Alexander

Abstract

When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling “expectation damages” close to legal practice, we show that the default remedy of contract law induces the ?rst best. Yet, in order to lower informational requirements of courts, parties may opt for a "specific performance" regime which grants the breached-against buyer an option to choose "restitution" if the tender’s value falls below some (arbitrarily chosen) quality threshold. In order to implement this regime, no more information needs to be verifiable than is implicitly assumed in Che and Hausch (1999).

Suggested Citation

  • Stremitzer, Alexander, 2008. "Standard Breach Remedies, Quality Thresholds, and Cooperative Investments," Bonn Econ Discussion Papers 4/2009, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:42009
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    More about this item

    Keywords

    breach remedies; incomplete contracts; cooperative investments;
    All these keywords.

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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