Asymmetric Information and Opportunistic Behaviour in Ex Ante Contract Negotiations: Precontractual Liability Regime

Angelo Castaldo (), Elisabetta Conte and Gianluigi Galeotti ()
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Angelo Castaldo: Sapienza Università di Roma
Elisabetta Conte: Ministero dell’Economia e delle Finanze
Gianluigi Galeotti: Sapienza Università di Roma

No 8, Public Finance Research Papers from Istituto di Economia e Finanza, DSGE, Sapienza University of Rome

Abstract: During negotiations, parties plan an exchange that will occur in the future and that implies a high level of uncertainty, regarding both contract conditions and final outcome. In this phase, parties are requested, according to country-specific legal framework, to act in good faith. As a matter of fact, the definition of the boundaries of the good faith principle could be used as a strategic variable to understand when a form of pre-contractual liability is both necessary and efficient. Once we have analyzed the different models of pre-contractual liability, given the impact on agents’ behavior and on the level of efficiency of the negotiations. We will focus mainly on two issues. First, the failure to disclose information as a breach of the duty to act in good faith and the cases in which the introduction of a duty to disclose is efficient; secondly, the hold-up problem as a violation of the good faith principle and as opportunistic behavior related to the level of reliance adopted by the party who hasn’t made specific investment. Out aim is to identify and to explain the reasons of the efficiency enhancement given by the introduction of a pre-contractual liability regime.

Keywords: Pre-contractual liability; Negotiations; Contract; Good faith; Duty to disclose; Reliance; Hold-up (search for similar items in EconPapers)
JEL-codes: D82 D86 K12 K42 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2014-12
New Economics Papers: this item is included in nep-law
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