Breach Inducement Activities and Performance of Breach Remedies
60 Pages Posted: 31 Aug 2018 Last revised: 31 Mar 2019
Date Written: March 22, 2019
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: Suggested Citation