Damages for Breach of Contract: Should the Government Get Special Treatment?

Posted: 21 Jan 2001

See all articles by Abraham L. Wickelgren

Abraham L. Wickelgren

University of Texas at Austin - School of Law; University of Texas at Austin - Center for Law, Business, and Economics

Abstract

Contracts that involve the government differ from contracts between two private parties in that the identity of one of the parties, the government, is subject to change. Given that the incumbent government knows that it might not be in power when the contract is completed, it may have an incentive to structure the contract to make it more difficult for a new government to renegotiate it. I show that traditional damage measures used in contracts between two private parties exacerbate this problem. The reliance damage measure induces the incumbent government to enlarge projects beyond the socially optimal level when it fears that a new government will want to cut it back. Expectation damages suffer from the same defect, though to a lesser extent.

Suggested Citation

Wickelgren, Abraham L., Damages for Breach of Contract: Should the Government Get Special Treatment?. Journal of Law, Economics, and Organization, Vol. 17, No. 1 . Available at SSRN: https://ssrn.com/abstract=251695

Abraham L. Wickelgren (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

University of Texas at Austin - Center for Law, Business, and Economics

Austin, TX 78712
United States

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