An Experimental Comparison of Reliance Levels under Alternative Breach Remedies

Randolph Sloof, Edwin Leuven, Hessel Oosterbeek and Joep Sonnemans ()

RAND Journal of Economics, 2003, vol. 34, issue 2, 205-22

Abstract: Breach remedies serve an important role in protecting relationship-specific investments. Theory predicts that some common remedies protect too well and induce overinvestment, either though complete insurance against potential separation or the possibility that breach is prevented by increasing the damage payment due through the investment made. In this article we report on an experiment designed to address whether these two motives show up in practice. In line with theoretical predictions, we find that overinvestment does not occur under liquidated damages. In the case of expectation damages, the full-insurance motive indeed appears to be operative. In the case of reliance damages, both motives are at work, as predicted. Copyright 2003 by the RAND Corporation.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (10)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rje:randje:v:34:y:2003:i:2:p:205-22

Ordering information: This journal article can be ordered from
https://editorialexp ... i-bin/rje_online.cgi

Access Statistics for this article

More articles in RAND Journal of Economics from The RAND Corporation
Bibliographic data for series maintained by ().