On the Importance of Default Breach Remedies
Tinbergen Institute Discussion Paper No. 06-082/1
23 Pages Posted: 3 Oct 2006
Date Written: September 2006
Theory predicts that default breach remedies are immaterial whenever contracting costs are negligible. Some experimental studies, however, suggest that in practice default rules do matter, as they may affect parties' preferences over contract terms. This paper presents results from an experiment designed to address the importance of default breach remedies for actual contract outcomes. We find that default rules do have an impact. The reason for this is not that contract proposals and/or responses are biased towards the default, but rather that parties often disagree over what the best contract is and therefore end up with the default.
Keywords: breach remedies, default remedies, experiments
JEL Classification: K12, C91
Suggested Citation: Suggested Citation