Why are Sales Law Remedies of Limited Duration?

23 Pages Posted: 6 Oct 2010

See all articles by Henrik Lando

Henrik Lando

Copenhagen Business School - CBS Law

Date Written: September 4, 2010

Abstract

In the sales law of most countries the duration of the buyer's claim for remedies is cut off by a statute of limitations. The present article argues that there is a rationale for cutting off the buyer's claim, and also determines the optimal length of the cut-off period. Essentially, allowing claims strengthens the seller's incentive to provide goods of durable quality, but may lead the parties to incur costs, e.g. for inspections, to resolve the validity of claims. With the passage of time after purchase, the incentive effect decreases, while the incentives for the parties to spend resources on resolving claims remains constant. The model derives a simple expression for the optimal cut-o¤ period based on these forces, exemplifi…es the usefulness of the theory by applying it to the question of whether the cut-off period should be shorter for used goods, and presents empirical evidence consistent with the theory.

Keywords: Limitation period, claim resolution cost, seller incentive

JEL Classification: K12, K40

Suggested Citation

Lando, Henrik, Why are Sales Law Remedies of Limited Duration? (September 4, 2010). Available at SSRN: https://ssrn.com/abstract=1687877 or http://dx.doi.org/10.2139/ssrn.1687877

Henrik Lando (Contact Author)

Copenhagen Business School - CBS Law ( email )

Porcelaenshave 18B, 1
Frederiksberg 2000
Denmark

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