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Optimal Remedies for Bilateral Contracts

48 Pages Posted: 11 Oct 2007 Last revised: 3 Jun 2009

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Barbara Luppi

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics; University of St. Thomas School of Law

Vincy Fon

George Washington University - Department of Economics

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Date Written: October 10, 2007

Abstract

In a bilateral contract, should a breaching party be allowed to force the performance of his non-breaching counterpart? Should a breaching party be able to collect damages in contract if his counterpart was also in breach? In this paper we examine these interrelated questions. We consider situations where parties enter into a bilateral contract making reciprocal promises of performance. We extend the standard models of remedies in contracts to consider alternative breach remedies. The paper shows the distortion of incentives created by the application of a defense of non-performance in unilateral breach cases and by the application of preclusion rules in bilateral breach cases.

Keywords: Bilateral Contracts, Contract-Specific Investments, Remedies for Breach, Defense of Non-Performance, Preclusion Rules

JEL Classification: K12, K41

Suggested Citation

Parisi, Francesco and Luppi, Barbara and Fon, Vincy, Optimal Remedies for Bilateral Contracts (October 10, 2007). Minnesota Legal Studies Research Paper No. 07-45. Available at SSRN: https://ssrn.com/abstract=1020669 or http://dx.doi.org/10.2139/ssrn.1020669

Francesco Parisi (Contact Author)

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

Barbara Luppi

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy

University of St. Thomas School of Law

2115 Summit Avenue
Saint Paul, MN 55105
United States

Vincy Fon

George Washington University - Department of Economics ( email )

2115 G Street, N.W.
Monroe Hall, #366
Washington, DC 20052
United States
202-994-7580 (Phone)
202-994-6147 (Fax)

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