Optimal Remedies for Bilateral Contracts

Posted: 28 Sep 2010  

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

Multiple version iconThere are 2 versions of this paper

Date Written: September 28, 2010

Abstract

In several contract situations, parties exchange promises of future performance, creating reciprocal obligations. In this paper, we extend the standard models of contract remedies to consider the incentives created by contracts where both parties provide only executory consideration and where the parties’ obligations are yet to be performed. We show that the legal remedies that govern these contracts provide valuable enforcement mechanisms that are not available when parties enter into a contract where they exchange a promise for an actual performance. We show that when the values of the parties’ performances are interdependent, contracts with executory consideration create effort incentives that are superior to the incentives of contracts with executed consideration. In contracts with independent values, contracts with executory consideration also offer a valuable instrument to correct enforcement imperfections. Such imperfections include imperfect compensation and litigation costs.

Keywords: Executory Contracts, Remedies for Breach, Defense of Non-Performance, Preclusion Rule

JEL Classification: K12, K41

Suggested Citation

Parisi, Francesco and Luppi, Barbara and Fon, Vincy, Optimal Remedies for Bilateral Contracts (September 28, 2010). Journal of Legal Studies, Forthcoming; Minnesota Legal Studies Research Paper No. 10-56. Available at SSRN: https://ssrn.com/abstract=1684091

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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