Post by Sapphire Capital on Oct 3, 2008 11:16:06 GMT 4
Standard Breach Remedies, Quality Thresholds, and Cooperative Investments
Alexander Stremitzer
University of Bonn - Faculty for Law & Economics
July 16, 2008
Columbia Law and Economics Working Paper No. 335
Abstract:
When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling "expectation damages" close to legal practice, we show that the default remedy of contract law induces the first best. Yet, in order to lower informational requirements of courts, parties may opt for a "specific performance" regime which grants the breached-against buyer an option to choose restitution if the tender's value falls below some (exogenously given) quality threshold. In order to implement this regime, no more information needs to be verifiable than is implicitly assumed in Che and Hausch (1999).
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1188003_code819867.pdf?abstractid=1162792&mirid=2
Alexander Stremitzer
University of Bonn - Faculty for Law & Economics
July 16, 2008
Columbia Law and Economics Working Paper No. 335
Abstract:
When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling "expectation damages" close to legal practice, we show that the default remedy of contract law induces the first best. Yet, in order to lower informational requirements of courts, parties may opt for a "specific performance" regime which grants the breached-against buyer an option to choose restitution if the tender's value falls below some (exogenously given) quality threshold. In order to implement this regime, no more information needs to be verifiable than is implicitly assumed in Che and Hausch (1999).
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1188003_code819867.pdf?abstractid=1162792&mirid=2