Economics of Damage Remedies III: Incentives Under Expectation Damage With One-Sided Private Information – A Mechanism Design Approach
- 632 Downloads
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.
- Edlin, A. S., & Reichelstein, S. (1996). Holdups, standard breach remedies, and optimal investment. The American Economic Review, 86, 478–501.Google Scholar
- Schweizer, U. (2000). An elementary approach to the hold-up problem with renegotiation. Bonn Econ Discussion Papers (No. 15/2000).Google Scholar
- Schweizer, U. (2006). Reliance investments, expectation damages and hidden information. GESY Discussion Paper No. 162. Germany: University of Bonn.Google Scholar
- Shavell, S. (2005). Specific performance versus damages for breach of contract: An economic analysis. Texus Law Review, 84, 831.Google Scholar
- Topkis, D. (1998). Supermodularity and complementarity. Princeton: Princeton University Press.Google Scholar