Up-front payment under RD rule

Ho-Chyuan Chen ()

Review of Economic Design, 2004, vol. 9, issue 1, 10 pages

Abstract: This paper explores the effect of an up-front payment to contracts under the reliance damage measure. We find that the efficiency in most cases fails, but can be obtained by a high enough total payment to assume away the seller’s breach, a high enough up-front payment to ensure that the seller does not sue, and a high enough trading price to ensure the buyer’s breach when the undesirable state occurs. Edlin’s device (1996), which has a very low trading price to assume away the buyer’s breach and a proper up-front payment to entice the seller to sign, fails to achieve the efficiency under the reliance damage measure. Copyright Springer-Verlag Berlin/Heidelberg 2004

Keywords: Up-front; efficient contract; reliance damage; salvage value; contract breach; relationship-specific investment (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1007/s10058-004-0116-4

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