Standard Breach Remedies, Quality Thresholds, and Cooperative Investments

Alexander Stremitzer ()

No 242, Discussion Papers from SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling “expectation damages” close to legal practice, we show that the default remedy of contract law induces the first best. Yet, in order to lower informational requirements of courts, parties may opt for a "specific performance" regime which grants the breached-against buyer an option to choose "restitution" if the tender’s value falls below some (exogenously given) quality threshold. In order to implement this regime, no more information needs to be verifiable than is implicitly assumed in Che and Hausch (1999).

Keywords: breach remedies; incomplete contracts; cooperative investments (search for similar items in EconPapers)
JEL-codes: K12 L22 J41 C70 (search for similar items in EconPapers)
Date: 2008-07
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Related works:
Working Paper: Standard Breach Remedies, Quality Thresholds, and Cooperative Investments (2009)
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