On and Off Contract Remedies Inducing Cooperative Investments

Abstract:     
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.

Number of Pages in PDF File: 29

Keywords: breach remedies, rescission, incomplete contracts, cooperative investments

JEL Classification: K12, L22, J41, C70

Accepted Paper Series