Advertisement

Economics of Damage Remedies III: Incentives Under Expectation Damage With One-Sided Private Information – A Mechanism Design Approach

Chapter
  • 632 Downloads

Abstract

In this chapter the author continues to consider a trading environment where both parties undertake selfish reliance investment in their respective value functions; however, once the contract is written, one of the two parties receives information about his or her valuation or cost function that remains hidden from the other party and to the courts. However, the author introduces an interesting twist to his analysis. Thus far, up to the last chapter, he has been considering a case where the only party (i.e. the seller), who obtains ex post private information (about her cost), chooses to breach the contract, so assessing the expectation interest of the victim (buyer), who does not hold any private information (on value), by a court was possible. However, here the twist is that the author rather permits the breach by either of the two parties irrespective of whether private information is obtained or not.

References

  1. Edlin, A. S., & Reichelstein, S. (1996). Holdups, standard breach remedies, and optimal investment. The American Economic Review, 86, 478–501.Google Scholar
  2. Edlin, A. S., & Shannon, C. (1998). Strict monotonicity in comparative statics. Journal of Economic Theory, 81(1), 201–219.CrossRefGoogle Scholar
  3. Mirrlees, J. A. (1971). An exploration in the theory of optimum income taxation. The Review of Economic Studies, 38(2), 175–208.CrossRefGoogle Scholar
  4. Myerson, R. B., & Satterthwaite, M. A. (1983). Efficient mechanisms for bilateral trading. Journal of economic theory, 29(2), 265–281.CrossRefGoogle Scholar
  5. Schweizer, U. (2000). An elementary approach to the hold-up problem with renegotiation. Bonn Econ Discussion Papers (No. 15/2000).Google Scholar
  6. Schweizer, U. (2006). Reliance investments, expectation damages and hidden information. GESY Discussion Paper No. 162. Germany: University of Bonn.Google Scholar
  7. Shavell, S. (1980). Damage measures for breach of contract. The Bell Journal of Economics, 11, 466–490.CrossRefGoogle Scholar
  8. Shavell, S. (2005). Specific performance versus damages for breach of contract: An economic analysis. Texus Law Review, 84, 831.Google Scholar
  9. Spence, M. (1973). Job market signaling. The Quarterly Journal of Economics, 87(3), 355–374.CrossRefGoogle Scholar
  10. Topkis, D. (1998). Supermodularity and complementarity. Princeton: Princeton University Press.Google Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  1. 1.Department of EconomicsDelhi School of EconomicsDelhiIndia

Personalised recommendations