Unbundling Efficient Breach: An Experiment

21 Pages Posted: 11 Aug 2017

See all articles by Maria Bigoni

Maria Bigoni

University of Bologna - Department of Economics; IZA Institute of Labor Economics

Stefania Bortolotti

MPI for Research on Collective Goods

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: September 2017

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 the 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.

Suggested Citation

Bigoni, Maria and Bortolotti, Stefania and Parisi, Francesco and Porat, Ariel, Unbundling Efficient Breach: An Experiment (September 2017). Journal of Empirical Legal Studies, Vol. 14, Issue 3, pp. 527-547, 2017. Available at SSRN: https://ssrn.com/abstract=3016681 or http://dx.doi.org/10.1111/jels.12154

Maria Bigoni (Contact Author)

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

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Stefania Bortolotti

MPI for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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

Tel Aviv University ( email )

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

HOME PAGE: http://english.tau.ac.il/profile/porata

University of Chicago - Law School ( email )

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

HOME PAGE: http://www.law.uchicago.edu/faculty/porat

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
154
PlumX Metrics