Breach Inducement Activities and Performance of Breach Remedies

60 Pages Posted: 31 Aug 2018 Last revised: 31 Mar 2019

See all articles by Chong-En Bai

Chong-En Bai

Tsinghua University - School of Economics & Management

Wenzheng Mao

The University of Hong Kong

Zhigang Tao

The University of Hong Kong - School of Business

Date Written: March 22, 2019

Abstract

We offer an explanation for why the courts generally prefer expectation damages instead of specific performance or liquidated damages, by taking into account the possibility of breach inducement activities – actions taken by one contracting party to make it more costly for the other party to perform the contract. We analyze the performance of each remedy in suppressing these breach inducement activities and meanwhile eliciting efficient relationship-specific investments between the contracting parties. Under the remedy of expectation damages, there always exist equilibrium contracts achieving all the efficiencies, whereas the same efficiencies cannot always be achieved under specific performance and liquidated damages.

Keywords: Breach Inducement, Expectation Damages, Specific Performance, Liquidated Damages

JEL Classification: D20, K12, L23

Suggested Citation

Bai, Chong-En and Mao, Wenzheng and Tao, Zhigang, Breach Inducement Activities and Performance of Breach Remedies (March 22, 2019). Available at SSRN: https://ssrn.com/abstract=3236925 or http://dx.doi.org/10.2139/ssrn.3236925

Chong-En Bai

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Wenzheng Mao (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Zhigang Tao

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China
(852) 2857-8223 (Phone)
(852) 2858-5614 (Fax)

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