Opportunistic Termination

Alexander Stremitzer ()

Bonn Econ Discussion Papers from University of Bonn, Germany

Abstract: If a seller delivers a good non-conforming to the contract, Article 2 of the UCC as well as European warranty law allows consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer resorts to "opportunistic termination", i.e. takes non- conformity as a pretext to get rid of a contract he no longer wants. We show that the possibility of opportunistic termination might actually have positive ef- fects. Under some circumstances, it will lead to redistribution in favour of the buyer without any loss of efficiency. Moreover, by curbing the monopoly power of the seller, a regime involving termination increases welfare by enabling a more efficient output level in a setting with multiple buyers.

Keywords: contract law; warranties; breach remedies; termination; harmonization (search for similar items in EconPapers)
JEL-codes: K12 C7 L40 D30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law and nep-reg
Date: 2007-05
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Working Paper: Opportunistic Termination (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:bon:bonedp:bgse7_2007

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