On and Off Contract Remedies Inducing Cooperative Investments
American Law and Economics Review (Fall 2012) 14(2): 488-516
29 Pages Posted: 17 Dec 2009 Last revised: 1 Apr 2013
Date Written: October 26, 2011
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: Suggested Citation