On and Off Contract Remedies Inducing Cooperative Investments

American Law and Economics Review (Fall 2012) 14(2): 488-516

Yale Law & Economics Research Paper No. 396

29 Pages Posted: 17 Dec 2009 Last revised: 1 Apr 2013

See all articles by Richard R. W. Brooks

Richard R. W. Brooks

New York University School of Law; Yale University - Law School

Alexander Stremitzer

ETH Zurich

Date Written: October 26, 2011

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.

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

JEL Classification: K12, L22, J41, C70

Suggested Citation

Brooks, Richard R. W. and Stremitzer, Alexander, On and Off Contract Remedies Inducing Cooperative Investments (October 26, 2011). American Law and Economics Review (Fall 2012) 14(2): 488-516; Yale Law & Economics Research Paper No. 396. Available at SSRN: https://ssrn.com/abstract=1524327 or http://dx.doi.org/10.2139/ssrn.1524327

Richard R. W. Brooks

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212.998.6619 (Phone)

HOME PAGE: https://its.law.nyu.edu/facultyprofiles/index.cfm?fuseaction=profile.overview&personid=43731

Yale University - Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States

Alexander Stremitzer (Contact Author)

ETH Zurich ( email )

Haldeneggsteig 4
Zurich, 8092
Switzerland
+41 (44) 632 40 08 (Phone)

HOME PAGE: http://www.lawecon.ethz.ch/people/stremitzer.html

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