Lost Profits, Market Damages, and Specific Performance: An Economic Analysis of Buyer's Breach

Asha Sadanand

Canadian Journal of Economics, 1987, vol. 20, issue 4, 750-73

Abstract: Suppose a buyer enters into a contract with a seller and subsequently wishes not to perform. This paper examines a formal model of three standard remedies-lost profits, market damages, and specific performance-to assess how well each compensates the seller. By defin ition, specific performance compensates exactly, since effectively th e buyer must perform. The extent to which the other remedies compensa te accurately depends upon the ease with which the buyer could otherw ise resell the unwanted goods. The lost-profits remedy compensates we ll when the buyer is unable to resell and otherwise overcompensates; the opposite holds for the market-damages remedy.

Date: 1987
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