Decreasing Liability Contracts

Robert D. Cooter and Ariel Porat

Berkeley Olin Program in Law & Economics, Working Paper Series from Berkeley Olin Program in Law & Economics

Abstract: Like constructing a building, performance on many contracts occurs in phases. As time passes, the promisor sinks more costs into performance and less expenditure remains. For phased performance, we show that optimal liability for the breaching party decreases as the remaining costs of completing performance decrease. In brief, efficiency requires a decreasing liability contract. To implement such a contract, we recommend deducting past expenditure on incomplete performance from liability. We show that progress payment contracts, which are commonplace in some industries, are materially equivalent to decreasing liability contracts. Our analysis should prove useful for elucidating progress payment conracts and for drafting and litigating phased contracts.

Date: 2003-07-17
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.escholarship.org/uc/item/27j9b28n.pdf;origin=repeccitec (application/pdf)

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:cdl:oplwec:qt27j9b28n

Access Statistics for this paper

More papers in Berkeley Olin Program in Law & Economics, Working Paper Series from Berkeley Olin Program in Law & Economics Contact information at EDIRC.
Bibliographic data for series maintained by Lisa Schiff ().