 Opportunistic TerminationThe Journal of Law, Economics, and Organization, 2012, vol. 28, issue 3, 381-406 Abstract: If a seller delivers a good nonconforming to contract, European and US warranty laws allow consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer may use nonconformity as a pretext for getting rid of a contract he no longer wants. We show that this possibility of "opportunistic termination" might actually have positive effects. Under some circumstances, it will lead to redistribution in favor of the buyer without any loss of efficiency. Moreover, by curbing the monopoly power of the seller, a regime involving termination might increase welfare by enabling a more efficient output level in a setting with multiple buyers. These potential benefits are absent if renegotiation is possible. (JEL K12, C7, L40, D30) The Author 2010. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press. Date: 2012 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:28:y:2012:i:3:p:381-406 Ordering information: This journal article can be ordered from Access Statistics for this article The Journal of Law, Economics, and Organization is currently edited by Andrea Prat More articles in The Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. |
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