Unbundling Efficient Breach: An Experiment

39 Pages Posted: 2 Dec 2016 Last revised: 6 Dec 2016

Maria Bigoni

University of Bologna - Department of Economics

Stefania Bortolotti

University of Cologne - Faculty of Management, Economics and Social Sciences; University of Bologna - Department of Economics

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Ariel Porat

Tel Aviv University; University of Chicago - Law School

Multiple version iconThere are 3 versions of this paper

Date Written: December 1, 2016

Abstract

Current law and economics scholarship analyzes efficient breach cases monolithically. The standard analysis holds that breach is efficient when performance of a contract generates a negative total surplus for the parties. However, by simplistically grouping efficient breach cases as of a single kind, the prior literature overlooks that gain-seeking breaches might be different from loss-avoiding breaches. To capture these different motives, we designed a novel game called Contract-Breach Game where we exogenously varied the reasons for the breach — pursuing a gain or avoiding a loss — under a specific performance remedy. Results from an incentivized laboratory experiment indicate that the motives behind the breach induce sizable differences in behavior; subjects are less willing to renegotiate when facing gain-seeking than loss-avoiding breaches, and the compensation premium obtained by the promisee is higher. Our analysis suggests that inequality aversion is an important driver of our results; indeed, inequality-averse subjects accept low offers more often in cases of loss-avoiding breaches than gain-seeking breaches. These results give us insight into the preferences and expectations of ordinary people in a case of a breach.

Keywords: contract damages, efficient breach, motives for breach, Contract-Breach game

JEL Classification: K12, D86, C9

Suggested Citation

Bigoni, Maria and Bortolotti, Stefania and Parisi, Francesco and Porat, Ariel, Unbundling Efficient Breach: An Experiment (December 1, 2016). Forthcoming, Journal of Empirical Legal Studies (2017); University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 785. Available at SSRN: https://ssrn.com/abstract=2879428

Maria Bigoni

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, Bologna 40126
Italy
+390512098134 (Phone)

HOME PAGE: http://https://www.unibo.it/sitoweb/maria.bigoni/en

Stefania Bortolotti

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Richard-Strauss-Str. 2
Cologne, D-50923
Germany

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Francesco Parisi

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

Ariel Porat (Contact Author)

Tel Aviv University ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel
972-3-6408283 (Phone)
972-3-6407260 (Fax)

HOME PAGE: http://www.law.tau.ac.il/Heb/?CategoryID=357&ArticleID=388

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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