On the Importance of Default Breach Remedies

Tinbergen Institute Discussion Paper No. 06-082/1

23 Pages Posted: 3 Oct 2006

See all articles by Randolph Sloof

Randolph Sloof

University of Amsterdam - Faculty of Economics & Business (FEB); Tinbergen Institute

Hessel Oosterbeek

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); Tinbergen Institute Amsterdam (TIA); Institute for the Study of Labor (IZA)

J. H. Sonnemans

University of Amsterdam - Faculty of Social and Behavioral Sciences; Tinbergen Institute

Date Written: September 2006

Abstract

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

Sloof, Randolph and Oosterbeek, Hessel and Sonnemans, J. H., On the Importance of Default Breach Remedies (September 2006). Tinbergen Institute Discussion Paper No. 06-082/1, Available at SSRN: https://ssrn.com/abstract=934326 or http://dx.doi.org/10.2139/ssrn.934326

Randolph Sloof (Contact Author)

University of Amsterdam - Faculty of Economics & Business (FEB) ( email )

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Hessel Oosterbeek

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

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HOME PAGE: http://www.fee.uva.nl/scholar/oosterbeek/

Tinbergen Institute Amsterdam (TIA)

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J. H. Sonnemans

University of Amsterdam - Faculty of Social and Behavioral Sciences ( email )

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Netherlands
+31 20 525-4249 (Phone)

Tinbergen Institute ( email )

Burg. Oudlaan 50
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Netherlands

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