Standard Breach Remedies, Quality Thresholds, and Cooperative Investments

Journal of Law, Economics, and Organization, 2012, 28(2): 337-359.

Columbia Law and Economics Working Paper No. 335

30 Pages Posted: 19 Jul 2008 Last revised: 13 Nov 2013

Alexander Stremitzer

UCLA School of Law

Date Written: April 4, 2010

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 commonly applied remedy of US contract law induces the first 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).

Keywords: breach remedies, incomplete contracts, cooperative investments

JEL Classification: K12, L22, J41, C70

Suggested Citation

Stremitzer, Alexander, Standard Breach Remedies, Quality Thresholds, and Cooperative Investments (April 4, 2010). Columbia Law and Economics Working Paper No. 335; Journal of Law, Economics, and Organization, 2012, 28(2): 337-359. ; Columbia Law and Economics Working Paper No. 335. Available at SSRN: https://ssrn.com/abstract=1162792 or http://dx.doi.org/10.2139/ssrn.1162792

Alexander Stremitzer (Contact Author)

UCLA School of Law ( email )

405 Hilgard Avenue
Box 90095-1476
Los Angeles, CA 90095-1476
United States

HOME PAGE: http://www.law.ucla.edu/faculty/all-faculty-profiles/professors/Pages/Alexander-Stremitzer.aspx

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