Cooperative Investments Induced by Contract Law

Urs Schweizer

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: Lecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004This paper revisits the economic analysis of contract law for a setting of cooperative investments. While Che and Chung (1999) have shown that expectation damages perform rather poorly, the present paper argues that this negative result follows from their impicit assumption of unilateral expectation damages. Yet, the very nature of cooperative investments gives rise to the possibility that both parties may claim expectation damages. It is shown that such a regime of bilateral expectation damages provides the incentives for the first best solution even in a framework of binary choice where, for selfish investments, the traditional overreliance result would hold.

JEL-codes: D62 K12 (search for similar items in EconPapers)
Date: 2004-06
New Economics Papers: this item is included in nep-law and nep-reg
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