Breach remedies inducing hybrid investments

Daniel Göller () and Alexander Stremitzer ()

International Review of Law and Economics, 2014, vol. 37, issue C, 26-38

Abstract: We show that parties in bilateral trade can rely on the default common law breach remedy of ‘expectation damages’ to simultaneously induce first-best relationship-specific investments of both the selfish and the cooperative kind. This can be achieved by writing a contract that specifies a sufficiently high quality level. In contrast, the result by Che and Chung (1999) that ‘reliance damages’ induce the first best in a setting of purely cooperative investments, does not generalize to the hybrid case.

Keywords: Breach remedies; Incomplete contracts; Hybrid investments; Cooperative investments; Selfish investments (search for similar items in EconPapers)
JEL-codes: C70 J41 K12 L22 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Breach Remedies Inducing Hybrid Investments (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:37:y:2014:i:c:p:26-38

DOI: 10.1016/j.irle.2013.06.005

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