Why are Sales Law Remedies of Limited Duration?
23 Pages Posted: 6 Oct 2010
Date Written: September 4, 2010
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: Suggested Citation